Gold edges lower as USD gains support from Fed rate hike bets and Middle East tensions

Gold faces renewed selling on Thursday as buyers return to the USD on dips.
Safe-haven demand for the dollar picks up as geopolitical risks persist and expectations turn hawkish on the Fed.
For fresh direction, traders await the US Q3 GDP report and the closely watched PCE Price Index.

Renewed selling weighs on Gold (XAU/USD) in Thursday's Asian session, pulling prices back below $4,050 and ending a three-day advance that had taken the metal to a weekly high on Wednesday. A recovery in the US Dollar (USD) is a key drag on the precious metal, with the currency regaining ground after Wednesday's post-FOMC correction from a two-week high.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Demand for the USD is returning as a hawkish policy outlook draws flows away from non-yielding Gold. At the close of its October policy meeting, the US Federal Reserve (Fed) left interest rates unchanged in a widely anticipated 10-2 vote. Governor Lisa Cook and Cleveland Fed President Beth Hammack favoured a quarter-point increase. Speaking at the post-meeting press conference, Fed Chair Kevin Warsh indicated that the central bank remained alert to persistent inflation and geopolitical risks. Alongside concerns over energy-led price pressures, those remarks support expectations of additional Fed tightening. Traders currently price in around an 80% probability of a rise in borrowing costs at the December policy meeting, according to the CME Group's FedWatch Tool.

The Greenback is also finding safe-haven support from concerns that Middle East tensions could escalate further. According to a Tuesday report in The Wall Street Journal, US officials have advised several Gulf Arab countries to prepare for a brief, intense military campaign against Iran after the November 3 midterm elections. Iranian Foreign Minister Abbas Araghchi, however, said the armed forces were ready to defend the country, while Tehran would remain in close contact with intermediaries to allow diplomacy a chance. Qatar-led regional mediators are seeking to resume US-Iran negotiations to avert a return to war. In a separate reported effort to restart peace talks, US Vice President JD Vance sent a letter to Mohsen Rezaei, secretary of Iran's Supreme National Security Council.

Geopolitical risks nevertheless persist, with fierce fighting continuing in Yemen between the Iran-backed Houthi group and the Saudi Arabia-backed government. On Tuesday, the Houthis said they had struck Saudi Arabia's Ras Tanura oil refinery – the kingdom's largest – with a ballistic missile. Earlier this week, attacks on pumping stations along Saudi Arabia's East-West oil pipeline also fuelled concerns over supply disruptions and lent support to crude oil prices. These developments favour USD bulls, suggesting that Gold prices remain more likely to move lower. Even so, traders may avoid aggressive positions until the release of key US economic data – the Advance Q3 GDP report and the Personal Consumption Expenditures (PCE) Price Index.

What Does the XAU/USD 4-hour Chart Show?

Can Gold Sustain a Recovery Within Its Descending Channel?

A bearish near-term bias persists for XAU/USD, which remains below the 100-period Exponential Moving Average (EMA) on the 4-hour chart after moving lower within a descending channel for roughly the past month. Momentum readings have improved: the Moving Average Convergence Divergence (MACD) has moved into positive territory, while the Relative Strength Index (RSI) is near neutral at around 47.5. These signals, however, suggest only a corrective rebound within the broader downtrend outlined by the channel.

If a recovery develops, the 100-period EMA at $4,105 is likely to provide the first resistance. A more substantial hurdle follows near $4,125 at the upper edge of the channel, where sellers could return. Below current levels, the next significant support could be the psychological $4,000 mark, followed by the descending parallel channel's lower boundary around $3,946. A clear break below that boundary would strengthen the existing bearish structure and leave room for further losses over the coming sessions.

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

Key Questions About the Fed

How does the Federal Reserve's role influence the US Dollar?

The Federal Reserve (Fed) sets US monetary policy with two objectives: maintaining price stability and promoting full employment. Changes to interest rates are its main means of pursuing these goals. If inflation exceeds the Fed's 2% target and prices are climbing too rapidly, the central bank increases interest rates. Higher borrowing costs across the economy make the US more attractive to international investors looking to invest their funds, strengthening the US Dollar (USD). Conversely, the Fed may cut rates to stimulate borrowing when inflation drops below 2% or the Unemployment Rate is too high. Such a move puts pressure on the Greenback.

How frequently does the Fed meet to decide monetary policy?

At eight policy meetings each year, the Federal Reserve's (Fed) Federal Open Market Committee (FOMC) reviews economic conditions and decides on monetary policy. Twelve Fed officials participate in the FOMC: the seven Board of Governors members, the Federal Reserve Bank of New York president and four presidents drawn from the other eleven regional Reserve Banks. Those four serve rotating one-year terms.

How does Quantitative Easing (QE) work, and what does it mean for USD?

To substantially expand credit flows when the financial system is stalled, the Federal Reserve may turn to Quantitative Easing (QE) in extreme circumstances. This unconventional policy is deployed during crises or periods of exceptionally low inflation. During the Great Financial Crisis in 2008, it was the Fed's preferred tool. Under QE, the Fed prints additional Dollars to purchase high-grade bonds from financial institutions. The US Dollar typically weakens as a result.

How does Quantitative Tightening (QT) work, and why does it affect the US Dollar?

By reversing QE, Quantitative tightening (QT) generally supports the US Dollar's value. Under QT, the Federal Reserve ceases bond purchases from financial institutions and allows its existing bonds to mature without reinvesting the principal in new bonds.