Why is gold struggling below $4,000 as Fed hike bets and Mideast risks drive USD to a new YTD high?

Gold extends its decline into a third consecutive day as USD buying following the US CPI release continues unchecked.
The safe-haven USD reaches its highest level since April 2025, supported by stronger Fed rate hike expectations and Middle East risks.
For XAU/USD, the prevailing backdrop indicates that further downside remains the path of least resistance.

Selling pressure keeps Gold (XAU/USD) below the psychological $4,000 level in the Asian session for a third consecutive day. The metal is trading close to the lowest level in more than one week, reached earlier this Thursday. Weighing on the commodity is continued US Dollar (USD) strength: the rally triggered by hot US consumer inflation figures is extending as Federal Reserve (Fed) rate hike expectations strengthen and uncertainty persists in the Middle East.

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

Expectations of further Fed tightening gained support from the October US Consumer Price Index (CPI) report published earlier this week. Several influential FOMC members subsequently delivered hawkish remarks, reinforcing market expectations of another increase in US borrowing costs in December. Traders have also begun factoring in the possibility of a sizeable 50-basis-point (bps) hike next month. Against this backdrop, the benchmark 10-year US government bond yield moved back above 5% on Wednesday, with the rate outlook continuing to support the Greenback.

Are Fed hawks strengthening December hike bets as political-pressure concerns ease?

For Rabobank analysts, the market reaction to the latest hawkish messages from Fed officials, “including those from Waller that put the risk of a 50-bps rate hike on the table,” reflects more than an immediate adjustment to the expected policy path. Besides observing that the market is now “fully priced for a December rate hike,” they stress that the remarks were “met with no real speculation that the Fed would be pressured by political forces not to raise rates.”

On the question of credibility, Rabobank states that “since Fed Chair Warsh surprised the market with a hawkish position at Jackson Hole in August, fears about diminished Fed credibility have dissipated.” The analysts also argue that “the results of last week’s midterm elections suggest less reason to expect pressure from the White House,” bolstering the view that the Fed can carry out its tightening plans without substantial political interference.

Geopolitical risk continues to command a premium as the US-Iran confrontation over the Strait of Hormuz persists. Both countries have struck islands in the waterway in recent days. US forces reportedly launched a series of attacks on Iran's Qeshm Island, while Tehran targeted ship navigation systems on the Omani island of Didamar at the entrance to the Persian Gulf. Iranian Armed Forces Deputy Chief of Staff Brigadier General Kioumars Heidari also said Tehran had closed the strategic waterway and would reopen it only on the orders of the leader of the revolution.

Together, these developments have driven the USD Index (DXY), which measures the Greenback against a basket of currencies, to its strongest level since April 2025, supporting the case for further advances. Gold consequently appears more likely to move lower than higher, with any recovery attempt more likely to attract selling. Attention now turns to the customary US Weekly Initial Jobless Claims release and remarks from Fed officials. Fresh geopolitical developments could also generate volatility, giving both the buck and XAU/USD some impetus.

XAU/USD: 1-hour chart

Technical Analysis: Where are the key levels?

The near-term outlook for the precious metal remains bearish after the previous day's rejection around the 100-hour Exponential Moving Average (EMA) at $4,044. The subsequent break below the 50.0% retracement, followed by acceptance under the psychological $4,000 level, reinforces that negative bias. There are tentative signs of stabilisation, however: the Moving Average Convergence Divergence (MACD) indicator has edged into positive territory, while the Relative Strength Index (RSI), hovering near 31, has recovered only slightly from oversold levels. These momentum signals fall short of indicating a decisive reversal higher, and a cluster of overhead resistance continues to limit gold's upside.

On the downside, the first support lies at $3,976, the 61.8% retracement. Should the pullback deepen, buyers could seek to protect the broader uptrend at the lower Fibonacci support levels of $3,930 (78.6%) and $3,870 (100%). Any advance would initially face the 50.0% retracement at $4,009, before encountering a strong resistance zone around the 38.2% retracement at $4,041 and the nearby 100-period EMA at $4,044. A sustained move above the latter would clear a route towards $4,082, the 23.6% retracement, followed by the cycle high anchor near $4,147.

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

FAQs on the Fed

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

The Federal Reserve (Fed) sets US monetary policy with a dual mandate of maintaining price stability and promoting full employment. Adjusting interest rates is its main means of pursuing these objectives. If prices climb too rapidly and inflation exceeds the Fed's 2% target, the central bank increases interest rates. Higher borrowing costs across the economy make the US more attractive to international investors seeking a place for their funds, 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.

What is the schedule for the Fed's monetary policy meetings?

At the Federal Reserve's (Fed) eight annual policy meetings, the Federal Open Market Committee (FOMC) reviews the state of the economy and decides on monetary policy. Twelve Fed officials attend the FOMC: all seven Board of Governors members, the president of the Federal Reserve Bank of New York and four of the other eleven regional Reserve Bank presidents. The latter four serve rotating 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 boost the supply of credit in a financial system that has stalled. This unconventional policy is deployed in crises or when inflation is exceptionally low, 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 why does it affect the US Dollar?

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