Gold drifts lower as Fed rate hike bets and Middle East tensions boost USD

Gold meets with fresh supply on Thursday amid the emergence of some USD dip-buying.
Hawkish Fed expectations and geopolitical risks revive demand for the safe-haven buck.
Traders now look to the US Q3 GDP report and the crucial PCE Price Index for some impetus.

Gold (XAU/USD) comes under some renewed selling pressure on Thursday, sliding back below $4,050 during the Asian session and snapping a three-day winning streak to the weekly top, touched the previous day. The US Dollar (USD) regains positive traction following Wednesday's post-FOMC corrective slide from a two-week high and turns out to be a key factor weighing on the precious metal.

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

In a widely expected move, the US Federal Reserve (Fed) held interest rates steady at the end of the October policy meeting in a 10-2 vote, with Governor Lisa Cook and Cleveland Fed President Beth Hammack preferring a quarter-point hike. Meanwhile, Fed Chair Kevin Warsh signaled during the post-meeting press conference that the central bank remains vigilant against persistent inflation and geopolitical risks. This comes on top of concerns about energy-driven price pressures and underpins prospects for further tightening by the Fed. According to the CME Group's FedWatch Tool, traders are currently assigning around an 80% chance that the US central bank will raise borrowing costs at its December policy meeting. The hawkish outlook, in turn, revives USD demand and contributes to driving flows away from the non-yielding Gold.

Adding to this, fears of a further escalation of tensions in the Middle East underpin the safe-haven Greenback. In fact, The Wall Street Journal reported on Tuesday that US officials have told several Gulf Arab countries to prepare for a short and intense military campaign against Iran after the November 3 midterm elections. On the other hand, Iranian Foreign Minister Abbas Araghchi said armed forces stand ready to defend the country even as Tehran will keep in close contact with intermediaries to give diplomacy a chance. Meanwhile, regional mediators led by Qatar are working to restart negotiations between the US and Iran to prevent the resumption of the war. Separately, US Vice President JD Vance reportedly sent a letter to Mohsen Rezaei, secretary of Iran's Supreme National Security Council, in an effort to revive peace negotiations.

Nevertheless, the geopolitical risks remain in play as furious fighting between the Iran-backed Houthi group and the Saudi Arabia-backed government in Yemen continues. In the latest developments, the Houthis on Tuesday said they had targeted Saudi Arabia's Ras Tanura ‌oil refinery – the biggest in the kingdom – with a ballistic missile. Furthermore, attacks on pumping stations along Saudi Arabia’s East-West oil pipeline earlier this week stoked supply disruption fears and supported crude oil prices. This, in turn, favors USD bulls and suggests that the path of least resistance for the Gold price remains to the downside. Traders, however, might refrain from placing aggressive bets and opt to wait for the release of crucial US macro data – the Advance Q3 GDP report and the Personal Consumption Expenditures (PCE) Price Index.

XAU/USD 4-hour chart

Technical Analysis

The XAU/USD pair has been trending lower over the past month or so along a downward-sloping channel and keeps a bearish near-term tone below the 100-period Exponential Moving Average (EMA) on the 4-hour chart. Meanwhile, the Moving Average Convergence Divergence (MACD) has turned positive and the Relative Strength Index (RSI) hovers near a neutral region, around 47.5. Improving momentum indicators, however, only hint at a corrective bounce within a broader downside bias defined by the descending channel.

Hence, any attempted recovery is more likely to confront initial resistance near the 100-period EMA at $4,105, followed by a stronger barrier at the channel top around $4,125, where selling pressure could re-emerge. On the downside, the $4,000 psychological mark could act as the next notable support ahead of the lower boundary of the descending parallel channel, around $3,946. A decisive break beneath this floor would reinforce the prevailing bearish structure and open the door to deeper losses in the coming sessions.

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

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.