Gold drops below $4,000 amid market debate over a half-point Fed rate hike

• Buying interest in Gold remains subdued, with hawkish Fed expectations continuing to set the tone for market sentiment.
• A December rate hike is now fully priced in by markets following stronger US inflation and hawkish comments from the Fed.
• Weak buying momentum, reflected in an RSI near 41, leaves XAU/USD with a bearish bias beneath the 20-day SMA.

Gold (XAU/USD) comes under renewed pressure on Thursday, retreating below $4,000 and surrendering most of the previous week’s advance. Expectations of more aggressive interest rate hikes by the Federal Reserve (Fed) have pushed the US Dollar (USD) to a new year-to-date peak. A subsequent pullback in the Greenback has allowed Gold to rebound from an intraday trough of $3,924. XAU/USD is trading near $3,952 at the time of writing, a decline of 0.82% for the day.

After reaching a high of 103.08, the US Dollar Index (DXY) is trading around 102.88. The index measures the Greenback against a basket of six major currencies.

Ahead of Tuesday’s US inflation release, Fed Governor Christopher Waller had raised the possibility of a 50-basis-point (bps) increase in December. According to Waller, a half-point hike could be necessary if October’s core Consumer Price Index (CPI) registered “around 0.3% or higher.” The report met that condition: monthly core CPI increased 0.3%, exceeding the 0.2% forecast. Headline CPI, meanwhile, advanced 0.4% against an estimate of 0.3%.

Can the Dollar sustain momentum with a December Fed hike fully priced in?

Highlighting the extent of rate-hike pricing, MUFG/BTMU analysts say "there are currently around 28bps of hikes priced by December, and 43bps of hikes priced by the following meeting in January," a pattern they describe as "indicat[es] that even if the Fed hikes by 25bps in December, it is now expected to quickly follow up with another 25bps hike at the start of next year."

For ING strategists, the Dollar continues to benefit from the policy and inflation backdrop: "the combination of hawkish Fedspeak and a US CPI beat earlier this week continues to pay dividends for the Dollar," with DXY having returned to "back at Liberation Day (April 2025) levels." They emphasise that "real front-end rate differentials [are] continuing to fuel strong Dollar momentum" and describe the move as follows: "this remains a rates-driven move, with contained excessive USD strength relative to short-term fair value currently built in."

Gold’s appeal is being dented by the possibility of higher borrowing costs, which encourages investors to favour interest-bearing assets. Attention now shifts to the next US data releases: weekly jobless claims later on Thursday and the Producer Price Index (PPI) on Friday. Several Fed officials are also scheduled to speak during the remainder of the week.

Developments between the US and Iran remain another area of attention. According to The Wall Street Journal (WSJ), US Vice President JD Vance is considering in-person talks with senior Iranian security official Mohsen Rezaei. Discussions remain at a preliminary stage, with no date agreed. Any indication of progress towards a deal could maintain downward pressure on Oil prices. If that decline persists, inflation pressures could ease, leading traders to scale back expectations of more aggressive Fed rate hikes.

Technical analysis: Can Gold regain ground above key resistance?

Buying interest remains limited on the daily XAU/USD chart. The 14-day Relative Strength Index (RSI) is near 41, signalling modest demand despite a slightly positive Moving Average Convergence Divergence (MACD) reading above zero. With the price still below the Bollinger Bands’ 20-day Simple Moving Average (SMA) at $4,042, the broader technical tone remains bearish and momentum relatively muted.

For a recovery, Gold first faces resistance at $4,000 and then at $4,042, the mid-Bollinger 20-day SMA. Holding above both levels would clear a path towards $4,150, followed by the upper Bollinger band around $4,199. Conversely, the lower Bollinger band near $3,885 provides immediate support. A decisive breach of that area would likely strengthen the existing bearish bias and bring deeper retracement levels into view.

(An AI tool assisted in preparing this story’s technical analysis. Learn more.)