Gold edges lower as USD strengthens on Fed rate hike bets and Middle East tensions

Renewed USD buying on dips puts Gold under fresh selling pressure on Thursday.
Safe-haven demand returns to the US Dollar as geopolitical risks persist and Fed expectations turn hawkish.
The US Q3 GDP release and the key PCE Price Index are next in focus for traders seeking direction.

Gold (XAU/USD) falls back below $4,050 in Thursday’s Asian session. Renewed selling ends a three-day advance that took the metal to its weekly high on Wednesday. Following Wednesday’s post-FOMC correction from a two-week peak, the US Dollar (USD) has regained momentum, placing the precious metal under pressure.

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

A 10-2 vote left US Federal Reserve (Fed) interest rates unchanged at the October policy meeting, as widely anticipated. Governor Lisa Cook and Cleveland Fed President Beth Hammack instead favoured a quarter-point increase. At the subsequent press conference, Fed Chair Kevin Warsh indicated that persistent inflation and geopolitical risks remain under close scrutiny. Alongside concerns over energy-related price pressures, his comments support the prospect of additional Fed tightening. The CME Group’s FedWatch Tool shows traders pricing in around an 80% probability of a borrowing-cost increase at the US central bank’s December meeting. These hawkish expectations are drawing demand back to the USD and diverting flows from non-yielding Gold.

The US Dollar’s safe-haven appeal is also benefiting from fears that Middle East tensions could escalate further. According to a Tuesday report in The Wall Street Journal, US officials have advised several Gulf Arab countries to prepare for a brief, intense military campaign against Iran after the November 3 midterm elections. Iranian Foreign Minister Abbas Araghchi, meanwhile, said the armed forces were ready to defend the country, although Tehran would maintain close contact with intermediaries to allow diplomacy a chance. Qatar is leading regional mediators’ efforts to resume US-Iran negotiations and avert a return to war. In a separate reported initiative to restart peace talks, US Vice President JD Vance sent a letter to Mohsen Rezaei, secretary of Iran’s Supreme National Security Council.

Geopolitical risks nevertheless persist, with fierce fighting continuing in Yemen between the Iran-backed Houthi group and the Saudi Arabia-backed government. The Houthis said on Tuesday that they had fired a ballistic missile at Saudi Arabia’s Ras Tanura oil refinery, the kingdom’s largest. Earlier this week, attacks on pumping stations serving Saudi Arabia’s East-West oil pipeline also raised concerns about supply disruptions and bolstered crude oil prices. The resulting support for USD bulls points to a continued downside bias for Gold. Even so, traders may avoid aggressive positions ahead of two important US macroeconomic releases: the Advance Q3 GDP report and the Personal Consumption Expenditures (PCE) Price Index.

4-Hour Chart: XAU/USD

Technical Outlook

For roughly the past month, a descending channel has guided XAU/USD lower. Trading below the 100-period Exponential Moving Average (EMA) on the 4-hour chart preserves the near-term bearish bias. Momentum readings have improved: the Moving Average Convergence Divergence (MACD) has moved into positive territory, while the Relative Strength Index (RSI) sits around 47.5, close to neutral. These signals suggest only a corrective rebound, however, within the broader downtrend outlined by the channel.

At $4,105, the 100-period EMA is likely to provide the first resistance to any recovery attempt. A more substantial hurdle follows around $4,125 at the channel’s upper boundary, where sellers could return. Below current levels, the psychological $4,000 threshold could offer the next significant support, followed by the descending parallel channel’s lower boundary near $3,946. A clear break below that floor would strengthen the existing bearish structure and leave scope for further declines over the coming sessions.

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

Federal Reserve: Key Questions

Federal Reserve policy: what is its role and effect on the US Dollar?

Price stability and full employment are the Federal Reserve’s (Fed) two mandates. As the institution responsible for US monetary policy, it relies primarily on interest-rate adjustments to pursue these objectives. If prices rise 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, 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. This puts pressure on the Greenback.

Eight meetings a year: how does the Fed set monetary policy?

Eight times a year, the Federal Reserve (Fed) convenes policy meetings at which the Federal Open Market Committee (FOMC) reviews economic conditions and determines monetary policy. Twelve Fed officials attend the FOMC: the Board of Governors’ seven members, the president of the Federal Reserve Bank of New York, and four presidents drawn from the other eleven regional Reserve Banks. Those four serve rotating one-year terms.

Quantitative Easing (QE): how does it affect USD?

To restore credit flows in a stalled financial system, the Federal Reserve may adopt Quantitative Easing (QE) in extreme circumstances. This policy substantially expands the flow of credit. Used during crises or periods of exceptionally low inflation, QE is an unconventional policy tool. It was the Fed’s preferred response during the Great Financial Crisis in 2008. The central bank creates more Dollars and purchases high-grade bonds from financial institutions with them. The US Dollar typically weakens under QE.

Quantitative Tightening (QT): what does it mean for the US Dollar?

By reversing QE, Quantitative Tightening (QT) generally supports the US Dollar’s value. Under QT, the Federal Reserve ceases bond purchases from financial institutions and does not use principal repayments from its maturing bond holdings to buy new bonds.