Gold holds firm but struggles to build momentum as Fed rate-hike risks linger

• Gold trades with a mild positive bias as the US Dollar heads for its first weekly decline in five weeks.
• Hawkish Fed expectations continue to weigh on bullion, limiting further gains.
• XAU/USD consolidates below $4,200 as technical indicators offer mixed signals.

Gold (XAU/USD) holds modest gains on Friday, supported by a softer US Dollar (USD) and lower Treasury yields. However, hawkish Federal Reserve (Fed) expectations keep buyers cautious about chasing prices aggressively higher. At the time of writing, XAU/USD trades around $4,175, up 0.10% on the day.

The metal gained 1.60% on Thursday as concerns over debt-funded AI investments drove investors toward safe-haven assets, including precious metals and government bonds, triggering a sharp decline in US Treasury yields. The benchmark 10-year yield plummeted to a three-week low below 5.10%, while the US Dollar Index (DXY) pulled back from an 18-month high near 103.

The DXY, which tracks the Greenback’s value against a basket of six major currencies, trades around 101.60, its lowest level since October 1, heading for its first weekly decline in five weeks.

Despite the sharp pullback in the US Dollar and yields, Gold struggles to stage a stronger recovery. Hotter-than-expected US inflation data this week show that price pressures remain sticky above the Fed’s 2% target, partly due to higher energy costs stemming from the war in the Middle East.

Inflation risks are likely to persist as Middle East supply concerns remain elevated. US–Iran talks remain deadlocked, while tensions escalate between Saudi Arabia and Yemen’s Houthis. Against this backdrop, traders widely expect the Fed to raise interest rates again before the end of the year.

Recent remarks from Fed officials suggest they remain open to further tightening, although they have not given a strong signal of a hike at the October 27-28 meeting. Speaking in Bangkok on Friday, Fed Chair Kevin Warsh stuck to his stance of avoiding forward guidance, saying, “I don't prejudge meetings.”

Analysts at MUFG/BTMU note that markets interpreted Fed Chair Warsh’s comments as largely status quo on policy. They highlight that “all we got from Warsh on monetary policy was the repeated emphasis that the Fed would remain focused on achieving its inflation goal,” and that his “lack of comment on policy was seen by market participants as an endorsement of current market pricing that implies only a small chance of a hike in October.”

The CME FedWatch Tool shows traders pricing in a 15% probability of a rate hike this month and an 89% chance of an increase in December. For Gold, the outlook hinges on whether the recent relief from lower yields can develop into a sustained recovery or whether the prospect of further Fed rate hikes keeps gains in check.

Technical analysis: Bearish bias persists as XAU/USD struggles below $4,200

On the daily chart, XAU/USD remains under selling pressure after retreating from its late-August peak near $4,700, although prices have been largely confined to the $4,100-$4,200 range since the start of the month. The metal remains below its 50-day, 100-day and 200-day Simple Moving Averages (SMAs), keeping the near-term bias bearish.

Momentum is mixed, with the Relative Strength Index (RSI) hovering in the mid-40s and the Moving Average Convergence Divergence (MACD) turning positive, which hints at improving but still constrained upside while price trades below these key moving averages.

On the topside, initial resistance lies at the $4,200 psychological mark, followed by the 100-day SMA at $4,242 and the 50-day SMA at $4,331. A stronger recovery would face the $4,400 horizontal barrier ahead of the 200-day SMA at $4,522. On the downside, a sustained break below $4,100 could open the door toward the $4,000-$3,950 support zone.

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