Gold falls below $4,150 as prospects of further Fed tightening strengthen on elevated oil prices

• At around $4,120, gold trades lower in early Asian dealing on Wednesday.
• Persistently high oil prices fuelled inflation worries, potentially keeping the Fed on course for another rate rise later this year.
• CME's FedWatch Tool puts the probability assigned by traders to an October rate rise at 16.1%.

Elevated oil prices are fuelling concerns that US inflation will persist and the Federal Reserve (Fed) could leave interest rates higher for longer. Against that backdrop, gold (XAU/USD) extends its losses, edging down towards $4,120 in Wednesday’s early Asian session.

On Monday, the Iranian military stated that Tehran had not fully closed the Strait of Hormuz and could broaden the blockade to include the Bab al-Mandeb Strait and the Suez Canal. The Houthis claimed attacks on King Khalid International Airport in Riyadh, Saudi Aramco facilities in Yanbu on the Red Sea coast, the Shaybah oilfield and Saudi naval forces.

Possible interruptions to energy shipments through the Persian Gulf, alongside continuing Middle East tensions, could intensify worries about oil-led inflation and put pressure on gold.

Nearly a 16.1% probability of a further quarter-point rate rise at the Fed’s October 27-28 meeting is now priced in by traders. This follows remarks last week by Chairman Kevin Warsh that were taken as strengthening expectations of a pause.

With inflation still exceeding the Fed’s 2% target, attention remains on whether policymakers will hold rates steady this month before returning to monetary tightening later in the year. Although gold is commonly held as an inflation hedge, it pays no interest and therefore becomes less appealing when rates are high.

European equities retreat on French unrest as the Dollar strengthens and risk assets diverge

A widening divergence across risk assets is evident, according to Commerzbank analysts, who observe that "European equities declined amid political unrest in France, while US Treasury yields rose as the equity recovery reduced safe-haven demand." The bank also notes that "the USD was slightly firmer," against this backdrop. Changes in risk appetite were apparent in commodities too, with "Brent crude oil prices fell 0.3% to USD109.55" and "Gold fell 0.6% to USD4,141."

Warsh leaves year-end Fed decisions open while highlighting investment growth and AI

A score of 5.6/10 for Fed Chair Warsh’s speech on the FXS Speechtracker falls modestly short of the historical average of 6.1/10, pointing to a slightly less impactful yet still constructive tone. Warsh’s admission of being “over-scarred from the global financial crisis” reveals a cautious leaning, despite his emphasis on structural growth and an investment surge supported by “good policies,” and he declined to prejudge the October and December meetings. By focusing on AI as a demand-side force, alongside field hearings and task forces, the Fed appears to be actively developing new intellectual capital. However, the speech provided no explicit guidance that would substantially alter the policy outlook from the established baseline.

With a movement of 0.00 points, the FXS Fed Sentiment Index held steady at a still-elevated 127.51. Despite the absence of a fresh signal, the reading confirms that the broader policy tone remains firmly hawkish. Taken together, the unchanged index and below-average speech score suggest Warsh largely endorsed existing expectations of a Fed stance supportive of the Dollar, without delivering any new hawkish or dovish surprises.

Technical Analysis: Key resistance levels continue to cap Gold

On the daily chart, trading opens at a pivotal level for XAU/USD, which remains beneath both the middle line of the 20-day Bollinger bands and the 100-day simple moving average (SMA). These overhead barriers continue to constrain rallies, maintaining a bearish near-term bias. A lower 14-day Relative Strength Index (RSI) reading of around 41 adds to the picture of weak momentum and downside risk, though it does not yet indicate oversold conditions.

The middle Bollinger band near $4,170 provides the first upside resistance, ahead of the 100-day SMA around $4,235 and the upper Bollinger band at $4,275. Together, these levels create a broad supply zone that could restrain any recovery. Should selling pressure persist, the next significant support lies near $4,065 at the lower Bollinger band, where buyers may seek to arrest the decline.

(The technical analysis of this story was written with the help of an AI tool. Find out more.)