Gold struggles to build on recovery from YTD low beyond $3,900 as Fed hike bets cap gains

• Gold attracts some buyers on Monday as hopes for Iran diplomacy undermine the safe-haven USD.
• Ukrainian attacks on Russia and US threats of further military action keep a lid on the latest optimism.
• Fed rate hike bets further limit USD losses and cap the commodity ahead of this week’s US macro releases.

Gold (XAU/USD) kicks off the new week on a positive note, snapping a two-day losing streak and reversing part of Friday's heavy losses to sub-$3,900 levels, or its lowest since October 2025. The optimism over a potential diplomatic breakthrough to end the US-Iran war caps the safe-haven US Dollar (USD) and offers some support to the commodity. Meanwhile, US Federal Reserve (Fed) rate hike bets remain firmly on the table amid oil-driven inflation concerns and might act as a headwind for the non-yielding yellow metal.

Iranian negotiators reportedly held talks for a third consecutive day with Qatari mediators on Sunday to advance a deal to end the US-Israeli war on Iran. In further developments, Iran has proposed a two-day (48-hour) plan to reopen the Strait of Hormuz, provided that the US fulfills a set of conditions that include lifting the sanctions imposed following the Islamabad memorandum and reducing US forces in the region. Adding to this, US President Donald Trump said that negotiations with Iran were going fine and that Iran wanted a deal.

Trump, however, added that he has not ruled out further military action after the November 3 midterm elections. Furthermore, Iran’s Supreme Leader, Mojtaba Khamenei, ordered his top military commanders to prepare for renewed confrontation with the US and Israel, and to expand Tehran’s options for retaliation. This, along with fresh Ukrainian attacks on Russian oil refineries, keeps the geopolitical risk premium in play and keeps USD bears on the back foot, warranting caution before positioning for any further gains for the Gold price.

Meanwhile, US macro data, released last Thursday, pointed to resilient economic growth and persistent price pressures, solidifying bets for additional Fed tightening. According to the CME Group's FedWatch Tool, traders are currently pricing in around a 75% chance that the US central bank will raise borrowing costs again in December. Hence, strong follow-through buying is needed to confirm a near-term bottom for the XAU/USD pair as the focus now shifts to important US macro releases, scheduled at the start of a new month.

The US ISM Manufacturing PMI will be published later today, followed by the ISM Services PMI on Wednesday ahead of the closely watched US monthly employment details – popularly known as the Nonfarm Payrolls (NFP) report on Friday. In the meantime, the aforementioned fundamental backdrop suggests that any subsequent recovery is more likely to be sold into and remain capped.

XAG/USD 4-hour chart

Technical Analysis

Friday's breakdown and acceptance below the $4,000 psychological mark was seen as a key trigger for bearish traders. Moreover, the precious metal holds well below the 100-period Exponential Moving Average (EMA) on the 4-hour chart, validating the near-term negative outlook. The Moving Average Convergence Divergence (MACD) remains in negative territory with the MACD line below its signal and a weak histogram. That said, the Relative Strength Index (RSI) at 28.94 hovers in oversold territory, hinting that while downside pressure dominates, the latest slide could be stretched in the short term.

Nevertheless, any subsequent upward move is more likely to attract fresh sellers and remain capped near the 100-period EMA at $4,068.55, which acts as the key level bulls would need to reclaim to ease the current bearish bias. On the downside, traders would now look to Friday's swing low, around the $3,870 region for potential demand zones, which, if broken, should pave the way for an extension of the well-established downward trajectory.

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