$4,100 break eyed by gold bears as oil drives Fed hike bets and USD edges higher

A fourth consecutive day of pressure on Gold reflects several adverse factors.
December rate hike expectations strengthen as oil-led inflation concerns pressure non-yielding bullion.
Hopes for diplomacy with Iran restrain the USD and help contain the precious metal’s losses.

$4,100 remains the key threshold for Gold (XAU/USD) bears. After the metal reached a new weekly low in Wednesday’s Asian session, sellers are waiting for a sustained break and acceptance below that level before positioning for additional declines. Oil price volatility poses inflation risks, supporting expectations of further policy tightening by the US Federal Reserve (Fed). Bullion is also seen under pressure from a modest US Dollar (USD) rebound off the nearly three-week low reached on Tuesday.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Renewed optimism over US-Iran peace talks triggered a sharp intraday reversal in crude oil prices on Tuesday, pulling them back from a peak of more than one month. An unconfirmed report suggested that Qatar and Pakistan had presented the US and Iran with a compromise plan addressing both sides’ demands. Bloomberg subsequently reported, however, that a diplomat involved in the negotiations rejected reports that an agreement was near. State media also reported that Iranian Parliament Speaker Mohammad Bagher Ghalibaf told Pakistan’s Army Chief, Asim Munir, that the US could not gain Iran’s trust without fulfilling previously stated conditions. These included an end to all hostilities and the unfreezing of Iran’s assets. The comments dampened expectations of an imminent breakthrough.

Concerns over crude supply disruptions intensified after Iran’s First Vice President said the country had no option but to exercise sovereignty over the Strait of Hormuz. Oil prices consequently rebounded rapidly from their weekly low. Alongside last week’s elevated US inflation readings, this reinforces market expectations of an imminent Fed rate hike. The CME Group's FedWatch Tool shows traders assigning a probability of over 90% to another increase in US borrowing costs in December. Uncertainty over the Middle East crisis also lends some support to the safe-haven Greenback. This adds to the pressure on Gold for a fourth consecutive day and strengthens the argument for further declines.

Further guidance on the Fed’s policy trajectory may be needed before investors commit to aggressive directional positions. Attention therefore remains on the outcome of the two-day FOMC policy meeting on October 28, followed by the US Personal Consumption Expenditures (PCE) Price Index on October 29. The latter is the Fed’s preferred inflation measure. Next week’s monetary policy updates from the Reserve Bank of New Zealand (RBNZ), the Bank of Canada (BoC), the European Central Bank (ECB) and the Bank of Japan (BoJ) should also give non-yielding Gold meaningful impetus. Even so, the wider fundamental backdrop favours XAU/USD bears, suggesting that the downside remains the path of least resistance.

4-hour chart: XAU/USD

$4,100 in Focus: Technical Analysis

The bearish outlook is supported by the overnight failure to overcome the 100-period Exponential Moving Average (EMA) on the 4-hour chart and the decline that followed. Momentum indicators remain weak without yet pointing to oversold conditions. The Moving Average Convergence Divergence (MACD) is still negative, with a latest reading of -4.65, while the Relative Strength Index (RSI) stands at 39.16. A move below $4,100 would reinforce the bearish bias and bring the monthly swing low near $4,066 into view.

If selling continues, Gold could face an accelerating decline towards the psychological $4,000 level. Beyond that lies the year-to-date low in the $3,943-$3,942 region, reached in June. On a rebound, the 100-period EMA near $4,175 could remain a strong immediate resistance. Only sustained strength above that barrier would ease the prevailing bearish tone and create scope for a more substantial recovery.

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

Fed: Key Questions

Federal Reserve Policy and Its Effect on the US Dollar

Price stability and full employment are the Federal Reserve’s (Fed) two mandates. As the institution responsible for US monetary policy, it relies primarily on interest rate adjustments to pursue these goals. If prices rise too rapidly and inflation exceeds the Fed’s 2% target, the central bank increases interest rates. Borrowing becomes more expensive across the economy. The US Dollar (USD) strengthens as the US becomes a more attractive destination for international investors’ funds. Conversely, inflation below 2% or an excessively high Unemployment Rate may prompt the Fed to cut interest rates. This encourages borrowing but puts pressure on the Greenback.

Eight Meetings a Year: The Fed’s Policy Schedule

At eight policy meetings each year, the Federal Open Market Committee (FOMC) reviews economic conditions and decides monetary policy for the Federal Reserve (Fed). Twelve Fed officials attend: the seven Board of Governors members, the president of the Federal Reserve Bank of New York, and four of the other eleven regional Reserve Bank presidents. Those four presidents hold voting seats for one-year terms on a rotating basis.

Quantitative Easing (QE): Implications for the USD

When financial conditions become extreme, the Federal Reserve may turn to Quantitative Easing (QE). Through this policy, the Fed substantially expands the flow of credit within a stalled financial system. Reserved for crises or periods of extremely low inflation, this unconventional measure was the Fed’s preferred response during the Great Financial Crisis in 2008. The central bank prints additional Dollars and uses them to purchase high-grade bonds from financial institutions. The US Dollar typically weakens under QE.

Quantitative Tightening (QT): Implications for the US Dollar

By reversing QE, quantitative tightening (QT) usually supports the US Dollar’s value. Under QT, the Federal Reserve ceases bond purchases from financial institutions. It also refrains from reinvesting the principal repaid on its maturing bond holdings in new bonds.