Fed hike bets keep gold at risk despite rebound from three-month low

Gold remains under selling pressure as several adverse factors combine.
The commodity faces pressure from December Fed rate hike expectations and a slight USD rebound.
With the key FOMC meeting beginning next Tuesday, traders turn their attention to the policy outlook.

Selling pressure continues to limit the recovery in Gold (XAU/USD), which edged higher after slipping below the psychological $4,000 level to a fresh three-month low during Friday's Asian session. Although the Federal Reserve (Fed) recently indicated that raising interest rates was not urgent, traders continue to assign around an 80% probability to another increase in borrowing costs at the US central bank's December policy meeting. Oil-related inflation concerns also reinforce expectations of further Fed tightening, drawing funds away from non-yielding bullion.

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Supply worries linked to the intensifying Middle East conflict have kept crude oil prices close to the one-month high reached on Tuesday. Hostilities between Saudi Arabia and Yemen's Iran-backed Houthi movement have intensified sharply, with Houthi drones and missiles targeting the kingdom's airports and vital energy infrastructure. Meanwhile, Iran’s Islamic Revolutionary Guard Corps (IRGC) said renewed US attacks could lead Tehran to invade neighbouring countries and strike bases used for US military operations under its new offensive strategy.

Adding to these concerns is a report that the US and Israel have prepared plans for a brief but intensive military campaign against Iran following the US midterm elections, sustaining the geopolitical risk premium. Expectations of a hawkish Fed have also helped the safe-haven USD edge up from a three-week low, putting further pressure on the Gold price. Nevertheless, traders may hold back from fresh directional positions while awaiting clearer signals on the Fed's policy trajectory. Next week's much-awaited two-day FOMC meeting therefore remains the key focus.

A decision to keep interest rates unchanged is widely anticipated when the Fed announces its policy outcome on Wednesday. With no updated economic projections due, investors will closely examine the policy statement and Fed Chair Kevin Warsh's remarks at the subsequent press conference. Next Thursday brings the Advance US Q3 GDP report and the US Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred inflation measure. These releases will be important drivers of the USD and offer fresh direction for the Gold price.

What does the XAU/USD daily chart indicate?

Can Gold withstand further downside pressure?

XAU/USD bears received a key signal overnight when prices broke below support at the lower end of a short-term trading range and held below $4,100 at the close. Downward pressure also remains evident in the indicators: the Relative Strength Index stands at 34.34, just above oversold territory, while the Moving Average Convergence Divergence (MACD) remains negative at -6.51. Both point to continuing weakness despite initial signs of stabilisation. Still, the precious metal has shown resilience below the psychological $4,000 level, suggesting caution before taking positions for additional losses.

A recovery attempt would be more likely to encounter renewed selling and lose momentum around $4,065-$4,070, where the former trading-range support now acts as resistance. Beyond that lies the $4,100 round figure. A break above it could set off a short-covering rally towards the intermediate barrier at $4,170, followed by $4,200. The case for a lasting near-term recovery would require sustained strength and acceptance above that latter level.

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

Common questions about the Fed

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

Responsibility for US monetary policy rests with the Federal Reserve (Fed), whose dual mandate is to maintain price stability and promote full employment. Interest rate adjustments are its main means of pursuing these objectives. If prices rise too rapidly and inflation exceeds the Fed’s 2% target, the central bank increases interest rates. Borrowing consequently becomes more expensive across the economy, while the US becomes a more appealing destination for international investment, strengthening the US Dollar (USD). Conversely, inflation below 2% or an excessively high unemployment rate may prompt the Fed to cut interest rates to stimulate borrowing, putting pressure on the Greenback.

How frequently does the Fed meet to decide monetary policy?

At eight policy meetings each year, the Federal Open Market Committee (FOMC) reviews the economy and decides monetary policy for the Federal Reserve (Fed). Twelve Fed officials participate in the FOMC: the Board of Governors' seven members, the president of the Federal Reserve Bank of New York and four of the other eleven regional Reserve Bank presidents. Those four presidents rotate through one-year terms.

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

When conditions become extreme, the Federal Reserve may turn to Quantitative Easing (QE) to substantially expand credit flows through a stalled financial system. This unconventional policy is deployed in crises or periods of exceptionally low inflation and was the Fed’s preferred response during the Great Financial Crisis in 2008. 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 what does it mean for the US Dollar?

By reversing QE, Quantitative tightening (QT) usually supports the US Dollar's value. Under this process, the Federal Reserve halts bond purchases from financial institutions and, as bonds in its portfolio mature, does not reinvest the principal in new bonds.