Can Gold sustain its rebound above $4,130 as Oil eases and the Fed decision nears?

Gold rises 0.15% to $4,132, recovering from $4,106.
Oil prices soften as the US permits the unloading of blocked cargoes.
Fed rate-hike probabilities hold at 14% for October versus 89% for December.

Modest gains in Gold price (XAU/USD) on Wednesday accompany softer Oil prices, after US approval to unload cargo from some blocked vessels prompted selling in Oil markets. Having recovered from the day's low of $4,106, XAU/USD stands at $4,133 at the time of writing, a gain of 0.25%.

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

Can softer Oil prices and stable Treasury yields sustain the XAU/USD recovery?

Improved market sentiment is limiting bullion's gains, even as developments in the US-Iran war continue to unfold. According to newswire reports, Pakistani Army chief Asim Munir presented a “compromise proposal,” during a meeting with Iranian officials in Tehran. N12 news, meanwhile, reported that Munir conveyed the US “final warning” to Tehran, signalling that attacks could resume if Iran fails to agree to a peace deal.

According to Al Hadath, Iran's Secretary of the Supreme National Security Council, Mohsen Rezaei, told Munir that Iran explicitly rejected the American demands.

A positive development also emerged on the Russia-Ukraine war: the Kremlin agreed that Abu Dhabi may host a fresh round of trilateral talks involving the United States, Russia, and Ukraine.

With few releases on the US economic calendar, market participants are taking their cue from US equities. Stocks have extended their advance as AI hype fuels a surge in technology shares.

Stable US Treasury yields are lending support to Gold. The benchmark US 10-year note's yield is unchanged at 5.111%, while the Greenback is posting marginal losses.

At 101.67, the US Dollar Index (DXY) is 0.05% lower. The index tracks the dollar against a basket of six currencies.

The outlook for Federal Reserve (Fed) policy in the foreseeable future is another factor behind Gold's advance. According to Prime Terminal, markets assign a 14% probability to a 25-basis-point rate hike in October, while the likelihood for December remains elevated at nearly 89%.

Fed interest rate probabilities - Source: Prime Terminal

Next week's Fed meeting is increasingly drawing traders' attention, alongside the release of the Core Personal Consumption Expenditures (PCE) Price Index, the US central bank's preferred inflation measure.

For this week, the releases in focus are US Initial Jobless Claims and the University of Michigan Consumer Sentiment reading for October.

XAU/USD technical analysis: Can Gold break out of the $4,100-$4,200 range?

For the sixteenth consecutive day, Gold price remains confined to sideways trading between $4,100 and $4,200. Although there is no clear directional bias, the metal's decline of nearly 26% from its record high near $5,600 points to a medium-term downtrend.

The Relative Strength Index (RSI) signals bearish momentum, yet its slight upward tilt offers a mixed picture, suggesting that consolidation is likely to continue.

The downside therefore remains the path of least resistance for XAU/USD, with initial support at $4,100. A break below this level would bring the 14 October low of $4,073 into view, immediately followed by the 29 July cycle low of $3,996. Further down, support lies at the 17 July low of $3,959 and the year-to-date (YTD) low of $3,941.

A bullish reversal would face resistance first at $4,200, followed by the 100-day Simple Moving Average (SMA) at $4,235, the 50-day SMA at $4,316 and then $4,500.

Gold: Frequently Asked Questions

What makes Gold an investment choice?

Widely used as both a store of value and a means of exchange, Gold has held an important place throughout human history. Beyond its lustre and use in jewellery, the precious metal is now widely regarded as a safe-haven asset, or an investment considered attractive during unsettled times. Its independence from any particular issuer or government also underpins its widespread use as a hedge against inflation and currency depreciation.

Which buyers hold the most Gold?

The largest holders of Gold are central banks. To support their currencies during periods of uncertainty, they typically diversify their reserves and purchase Gold, reinforcing perceptions of economic and currency strength. Substantial Gold reserves can bolster confidence in a country's solvency. World Gold Council data show that central banks increased their reserves by 1,136 tonnes of Gold, valued at around $70 billion, in 2022. That represents the largest annual purchase since records began. Emerging-economy central banks, including those in China, India and Turkey, are rapidly expanding their Gold reserves.

How does Gold move relative to other assets?

An inverse correlation links Gold with the US Dollar and US Treasuries, both of which are major reserve and safe-haven assets. A weaker dollar typically supports Gold, allowing investors and central banks to diversify their holdings during turbulent periods. The metal also tends to move in the opposite direction to risk assets: stock-market rallies generally weigh on Gold price, whereas selling in riskier markets usually supports it.

Which factors drive Gold prices?

A broad range of influences can shift Gold prices. Its safe-haven appeal means geopolitical instability or concerns over a deep recession can send prices sharply higher. Since Gold offers no yield, lower interest rates tend to support it, while a higher cost of money generally puts pressure on the metal. Nevertheless, the US Dollar (USD) drives most price movements because Gold is quoted in dollars (XAU/USD). Dollar strength typically restrains Gold prices; a weaker dollar, by contrast, is likely to lift them.