Gold falls below $4,000 as hawkish Fed expectations outweigh risk-off sentiment

• Gold slides to July low as expectations of a hawkish Fed sustain selling pressure.

A fall to $3,965 in Friday’s Asian session takes Gold (XAU/USD) to its weakest level since July, with expectations of further Federal Reserve (Fed) interest rate rises continuing to weigh on the metal. Those expectations remain the dominant influence on prices despite the risk-averse mood across markets, putting Gold on course for a monthly decline. XAU/USD stands at around $3,979 at the time of writing, a loss of nearly 1% on the day.

Disappointing technology earnings have revived doubts about substantial AI expenditure and the adequacy of the returns it will deliver, prompting traders to reduce their appetite for risk. Government bonds attract investors, lowering US Treasury yields and pulling the US Dollar lower.

At around 101.65, the US Dollar Index (DXY) is heading for a third successive day of losses. The index measures the Greenback against a basket of six major currencies.

Positioning could matter more than fundamentals for the Dollar in the near term, according to analysts at ING. They warn that “the main risk for the dollar today is some precautionary unwinding of net-long positions ahead of Tuesday’s US midterm elections.” The analysts point out that “a Democratic sweep is trading around 68% in prediction markets,” describing that outcome as “slightly negative for the US dollar from a few angles, from higher risk of government shutdown and gridlock on debt ceiling negotiations to potential damage to already shaky AI-related sentiment.”

ING nevertheless sees limits to the potential decline. While cautioning that “resurgent AI-related jitters and the upcoming US midterms are increasing downside risks for the dollar,” it notes that “a still-hawkish Fed argues against major corrections.”

Reports that cryptocurrency exchange Binance has suffered a major security breach add to investor unease and put pressure on digital assets. Yet the shift away from risk has offered Gold no support so far. Traders remain focused instead on the implications for inflation and interest rates of rising oil prices linked to Middle East tensions.

Fears that the US may restart military strikes against Iran after next week’s US midterm elections have driven oil prices to their highest since May. With West Texas Intermediate (WTI) above $103 a barrel, the inflationary risks stemming from energy remain in focus.

Thursday’s figures showed September headline Personal Consumption Expenditures (PCE) inflation rising by 0.5% MoM and 3.6% YoY, alongside core increases of 0.3% MoM and 3.1% YoY. More expensive energy threatens to prolong the period in which inflation remains above the Fed’s 2% target.

Following the Fed’s decision to hold rates steady in October, traders now assign roughly a 75% probability to a December rate rise, according to the CME FedWatch Tool. As Gold pays no interest, higher borrowing costs generally act as a drag on the metal.

Technical analysis: XAU/USD faces further declines below $4000

Since reaching a peak near $4,700 in late August, XAU/USD has traced a succession of lower highs and lower lows on the daily chart. Sellers retain the advantage, with prices beneath the 50-day, 100-day and 200-day Simple Moving Averages (SMAs). Buying appetite appears muted, as indicated by a Relative Strength Index (RSI) reading near 34. Meanwhile, the Moving Average Convergence Divergence (MACD) stays below zero, pointing to continued downward pressure.

Any recovery would first encounter resistance at $4,000 and then $4,100. Beyond those levels lie the 100-day SMA near $4,218 and the nearby 50-day SMA at $4,257. A more sustained rebound could put horizontal resistance at $4,400 in view, ahead of the 200-day SMA around $4,491.

Below the $4,000 level at which Gold is already trading, the nearest support is $3,950, with the July low near $3,941 next in line. A clear break beneath this zone would leave scope for additional declines.

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