Below $3,950: Gold retreats as Fed hike bets weigh ahead of US midterm elections

Fed rate-rise expectations and recovering US bond yields underpin the USD, leaving gold edging lower.
Prospects for Iran diplomacy restrain the USD, while traders hold back ahead of the US elections.
US JOLTS Job Openings data due on Tuesday may give bullion fresh direction.

Gold (XAU/USD) slips below $3,950 again. Renewed selling during Tuesday’s Asian session, alongside a modest rise in the US Dollar (USD), trims part of Monday’s recovery from the one-year low reached last week. Monday’s data showed US manufacturing activity expanding for the 10th consecutive month in October. The Institute for Supply Management's (ISM) Manufacturing PMI climbed from 54.5 in the previous month to 55.5 in October, exceeding consensus forecasts. Together with hawkish expectations for the US Federal Reserve (Fed) and a rebound in US bond yields, the figures help the USD extend its overnight recovery from near the late October swing low.

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

Widespread caution ahead of the US midterm elections nevertheless limits the USD’s gains. The vote will determine control of Congress, and prediction markets strongly favour Democrats taking both the House of Representatives and the Senate. A Republican sweep, by contrast, would represent a bigger market surprise and could push US Treasury yields and the US Dollar (USD) higher. Prospects for a diplomatic agreement to end the US-Iran war may also discourage aggressive bullish USD positions. US President Donald Trump said on Monday that Iran wanted a deal to end the war and that an agreement could be reached. Iranian Foreign Minister Abbas Araqchi also described consultations through mediators as very intensive.

Even so, several days of talks between Iranian officials and Qatari mediators produced no breakthrough. This was despite revised proposals from Tehran to reopen the strategic Strait of Hormuz for two days if the US met a set of conditions. Renewed tensions between Russia and Ukraine also keep the geopolitical risk premium firmly in place. That should support the USD, indicating that gold’s path of least resistance remains lower. For fresh economic direction, traders will turn to US JOLTS Job Openings data later in the North American session. Friday’s key monthly US employment release, widely known as the Nonfarm Payrolls (NFP) report, remains the main focus.

4-hour chart: XAU/USD

100-Period EMA Caps Gold’s Near-Term Outlook

Trading below the 100-period Exponential Moving Average (EMA) on the 4-hour chart leaves XAU/USD with a bearish near-term bias. The overnight rejection near the late October swing low, followed by a retreat, reinforces that negative view even though the Moving Average Convergence Divergence (MACD) is mildly positive. A Relative Strength Index (RSI) reading near 40.0, meanwhile, suggests the recovery from recent oversold conditions remains tentative.

For bearish traders, Friday’s swing low around $3,870 now marks a potential demand zone. A break below it should clear the way for the established downtrend to extend. On the upside, the 100-period EMA at $4,053 provides immediate resistance. Only a sustained move above that level would relieve downside pressure and allow a more constructive recovery to develop.

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

Fed Questions Answered

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

The Federal Reserve (Fed) sets US monetary policy with two objectives: stable prices and full employment. Interest-rate adjustments are its main means of pursuing these goals. If prices rise too rapidly and inflation exceeds its 2% target, the Fed increases interest rates. Higher borrowing costs across the economy make the US more attractive to international investors seeking somewhere to place 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. Such cuts encourage borrowing and put pressure on the Greenback.

Eight meetings a year: how does the Fed decide policy?

At eight policy meetings each year, the Federal Reserve’s (Fed) Federal Open Market Committee (FOMC) reviews economic conditions and decides 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. Those four presidents rotate through one-year terms.

How does Quantitative Easing (QE) work and affect the USD?

When conditions become extreme, the Federal Reserve may turn to Quantitative Easing (QE). Through QE, the Fed sharply expands the flow of credit within a stalled financial system. This unconventional policy is used in crises or periods of exceptionally low inflation. During the Great Financial Crisis in 2008, it was the Fed’s preferred response. The Fed prints additional Dollars to purchase high-grade bonds from financial institutions, a process that typically weakens the US Dollar.

How does Quantitative Tightening (QT) work and affect the US Dollar?

As the reverse of QE, Quantitative tightening (QT) involves the Federal Reserve ending bond purchases from financial institutions. It also stops reinvesting the principal repaid when bonds in its portfolio mature into new bonds. This process generally supports the US Dollar’s value.