Gold recovers from three-month low but risks remain amid Fed rate rise bets

• A combination of headwinds keeps Gold under further selling pressure.
• Expectations of a December Fed rate rise and a slight USD rebound weigh on bullion.
• The pivotal FOMC meeting beginning next Tuesday becomes the market’s focus.

Below the psychological $4,000 threshold, Gold (XAU/USD) reached a new three-month low during Friday’s Asian session before recovering modestly, although further gains appear limited. Despite the Federal Reserve (Fed) recently signalling that it sees no urgency to increase interest rates, traders continue to price in around an 80% probability of another rise in borrowing costs at the US central bank’s December policy meeting. Concerns over oil-led inflation also reinforce expectations of additional Fed tightening, providing a key reason for investors to move away from non-yielding bullion.

Supply worries linked to the worsening Middle East conflict have kept crude oil close to the one-month high reached on Tuesday. Fighting between Saudi Arabia and Yemen’s Iran-backed Houthi movement has intensified sharply, with Houthi drone and missile attacks targeting the kingdom’s airports and vital energy infrastructure. Meanwhile, Iran’s Islamic Revolutionary Guard Corps (IRGC) said renewed US attacks could lead Tehran to invade neighbouring countries and strike bases used for US military operations under its new offensive strategy.

The geopolitical risk premium remains in place, also supported by a report that the US and Israel have prepared plans for a brief but intensive military campaign against Iran following the US midterm elections. At the same time, expectations of a hawkish Fed are helping the safe-haven USD stage a modest recovery from a three-week low, adding to the downward pressure on Gold. Fresh directional positions may nevertheless be limited as traders await clearer guidance on the Fed’s policy trajectory. Attention therefore remains on the much-anticipated two-day FOMC meeting next week.

Interest rates are widely expected to remain on hold when the Fed delivers its decision on Wednesday. With no updated economic projections due, investors will closely examine the accompanying policy statement and remarks from Fed Chair Kevin Warsh at the subsequent press conference. Next Thursday then brings the Advance US Q3 GDP report and the US Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred measure of inflation. These releases will be important drivers of the USD and offer fresh impetus for Gold.

Daily XAU/USD price chart

Technical indicators point to continued downside pressure

For XAU/USD bears, a key signal came overnight as the price broke beneath short-term trading-range support and maintained a close below $4,100. Downward pressure also remains evident in the indicators, despite tentative signs of stabilisation: the Relative Strength Index stands at 34.34, just above oversold territory, while the Moving Average Convergence Divergence (MACD) remains negative at -6.51. However, the precious metal’s resilience below the psychological $4,000 level suggests caution is warranted before positioning for additional declines.

Any recovery attempt is more likely to run into renewed selling and lose momentum around $4,065-$4,070, where former trading-range support now acts as resistance. Beyond that lies the round $4,100 level. A break above it could prompt a short-covering rally towards the intermediate barrier at $4,170 and then $4,200. A sustained move and acceptance above the latter level would be required to support the case for a lasting near-term recovery.

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