Gold regains $4,000 as Oil slips and Fed decision puts recovery to the test

• Gold advances 0.6% to $4,020 following a recovery from $3,978.
• Declining Oil prices and Treasury yields offer support to Bullion.
• Markets put December Fed rate hike probability at 83% before Warsh speaks.

A 0.6% rise has taken Gold to $4,020, with XAU/USD recovering from a daily low of $3,978 after ending last week below $4,000. Ahead of this week’s Federal Reserve (Fed) monetary policy meeting, speculation that the US-Iran conflict could de-escalate has weighed on energy prices.

XAU/USD recovers as lower Treasury yields and Middle East diplomacy underpin Bullion

Price movements remained driven by geopolitics, notably in Oil, which has displayed a modest positive correlation with the US Dollar. The Mecca Pact members, Iran, Turkey, Pakistan and Saudi Arabia, agreed to pursue further discussions. However, with Iranian officials ruling out nuclear discussions at the Mecca Pact gathering, speculation persists over a coordinated US-Israel attack on Tehran.

A 0.5% decline has brought West Texas Intermediate (WTI), the US Oil benchmark, to $102.90. Together with easing US Treasury yields, the fall has helped Bullion recover.

As investors remove expectations of a Fed rate increase this Wednesday, the US 10-year Treasury note yield has slipped 2 basis points to 4.978%. The yield has an inverse correlation with Gold prices.

Money markets assigned an 83% probability to a Fed rate increase at the December meeting at the time of writing. Attention nevertheless remains on Fed Chair Kevin Warsh’s press conference: although he does not offer guidance, his remarks could indicate the central bank’s next step.

While Gold serves as an inflation hedge, traders should bear in mind that high interest rates are generally unfavourable for the metal. Hawkish remarks from Warsh could put XAU/USD under further pressure, leaving a move below $4,000 possible.

Further indications of the interest-rate outlook will be sought from the forthcoming US Personal Consumption Expenditures (PCE) figures, the Fed’s preferred inflation measure. Investors are also preparing for the US midterm elections on 3 November.

XAU/USD technical analysis: Gold finds buyers below $4,000 and eyes $4,050 next

Gold has reversed course after plunging to a two-month low of $3,975 and is close to completing a ‘bullish engulfing’ candlestick pattern, pointing to further gains. A rising Relative Strength Index (RSI) supports the recovery in momentum. However, the 14-day RSI remains bearish, potentially limiting the advance.

XAU/USD faces initial resistance at $4,100, above which the psychological $4,150 level would come into view, followed by $4,200. A break beyond that level would bring the 100-day Simple Moving Average (SMA) at $4,221 into focus, ahead of the 50-day SMA at $4,294.

Should the decline resume, XAU/USD would encounter initial support at $4,000 and then October’s 23-day low of $3,975. Further down, the key levels are the 17 July low of $3,959 and the year-to-date (YTD) low of $3,941.