Oil surge pushes gold to two-month low below $4,050

• At around $4,025, gold trades under selling pressure in early Asian trading on Friday.
• A surge in oil as Middle East hostilities intensify puts pressure on gold prices.
• While markets anticipate unchanged Fed rates next week, traders consider a further December rate increase possible.

Near $4,025, gold (XAU/USD) reaches its lowest level in more than two months in Friday’s early Asian trading. Ahead of the Federal Reserve (Fed) policy meeting, the metal is coming under selling pressure as worsening Middle East tensions drive oil sharply higher.

Deadly attacks in Saudi Arabia fuelled concerns over regional supplies, driving a sharp rise in the global oil benchmark and raising fears of an energy-led inflation shock. With energy becoming more expensive, the likelihood increases that the US central bank will have to adjust monetary policy further to curb price pressures.

An airport in eastern Saudi Arabia was attacked on Wednesday evening, according to Yemen’s Houthi, which claimed responsibility. The BBC also reported that a drone was intercepted while attempting to strike a processing facility belonging to Saudi Arabia’s state oil company Aramco in the Shaybah oil field, where a contractor’s vehicle was set alight.

Last month brought the Fed’s first interest rate increase since 2023, and markets expect additional tightening later this year. Although Fed Chairman Kevin Warsh declined last week to indicate the likely decision at this month’s policy meeting, he said inflation exceeding expectations had not altered his assessment of the US economy.

The probability of rates remaining unchanged at the October meeting is now 92.8%, according to the CME FedWatch tool. Because gold pays no interest, higher rates generally diminish its appeal relative to assets that offer a yield.

Gold trades below key resistance as Societe Generale warns of downside risks

According to Societe Generale analysts, gold has "carved out an interim low near $4,065 earlier this month and has since evolved within a narrow consolidation." Describing the resistance overhead, they say "the upper boundary of this range at $4,200/4,225 represents a short-term resistance zone," and warn that "failure to overcome this hurdle could denote the risk of a deeper pullback." Turning to support, the bank notes that "the lower boundary of the consolidation near $4,065 serves as the first support," adding that "a break below this may extend the decline towards the June low at $3,960/3,940 and projections near $3,830."

Fed retains year-end flexibility as Warsh highlights investment growth and AI risks

At 5.6/10 against an established baseline of 6.1/10, the FXS Speechtracker score pointed to a moderately cautious address from Fed Chair Warsh and slightly less conviction than usual. His acknowledgement of being “over-scarred from the global financial crisis” signals a preference for managing risk and remaining alert to financial stability concerns. At the same time, he points to a structural surge in growth and investment supported by “good policies.” By stressing that the October and December meetings should not be pre-judged, Warsh leaves policy choices open and underlines a data-dependent approach. The Fed “crystalizes” its views on output, employment and inflation while monitoring AI’s effects on demand and associated tail risks.

A 0.00-point change left the FXS Fed Sentiment Index steady at a firmly hawkish 127.51. Despite the slightly softer speech score, that reading indicates that the wider policy backdrop remains restrictive. Taken together, the elevated index and mid-range FXS Speechtracker score suggest that markets continue to price in a hawkish Fed reaction function, even as Warsh emphasises flexibility and recognises uncertainty over AI and its near-term effects on employment.

Technical Analysis: Gold struggles below the 100-day SMA

With spot trading beneath a closely grouped set of moving-average and volatility-based resistance levels, the daily XAU/USD chart retains a bearish near-term bias. Both the 20-day Bollinger middle band and the 100-day simple moving average (SMA) lie above the current price. Rallies are therefore likely to attract selling while gold remains beneath these indicators. A Relative Strength Index (RSI) reading of 35 sits just above oversold territory, suggesting that downward momentum persists but may ease as conditions become increasingly stretched.

The lower Bollinger band, around $4,055, provides the first resistance on any advance, ahead of the 20-day Bollinger middle band near $4,150. Beyond these levels, a wider supply zone is formed by the 100-day SMA at about $4,230 and the upper Bollinger band close to $4,245. Gold would need to regain this zone to relieve the prevailing bearish pressure and create scope for a more sustained recovery.

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