Gold bulls remain on the sidelines as USD rallies to fresh YTD peak

• Gold maintains a capped tone at the start of a new week amid a strong pickup in USD demand.
• Geopolitical risks counter receding October Fed hike bets and lift the USD to a fresh YTD high.
• Sliding US bond yields offer support to the bullion as traders look to the US ISM Services PMI.

Gold (XAU/USD) struggles to capitalize on a modest Asian session uptick on Monday and currently trades just below $4,150, nearly unchanged for the day amid mixed cues. As investors look past Friday's disappointing US jobs data, the US Dollar (USD) regains strong positive traction and rallies to a fresh high since April 2025. This, in turn, is seen as a key factor capping the commodity, though receding bets for an October rate hike by the Federal Reserve (Fed) help limit the downside.

The popularly known US Nonfarm Payrolls (NFP) report showed that the economy added 29K new jobs in September, compared to the previous month's downwardly revised reading of 133K and 90K consensus estimates. Moreover, the Unemployment Rate unexpectedly edged higher to 4.2% from 4.1% in August, while annual wage growth slowed to 3.0% in September, matching the lowest pace recorded since May 2021. This comes on top of the soft US inflation data, released last week, and significantly eased pressure on the Fed to raise interest rates. The outlook, in turn, drags US bond yields further away from multi-year highs and acts as a tailwind for the non-yielding Gold.

Fed hike pressure eases after softer US data but ABN Amro still sees December move

Analysts at ABN Amro judge the latest US labour market report as “consistent with our base case,” arguing that “the apparent resurgence in the labour market over the previous two reports was somewhat of a mirage.” They highlight that “the three-month average of 51k is solid given labour supply, but it does not indicate a hot or tight market,” and contend that the softer tone in employment, “especially alongside the downside surprise in the PCE report earlier this week, removes the pressure on the Fed to hike in October.”

Despite this, ABN Amro maintains that “persistent inflationary pressure from the energy shock” is likely to “prompt one more Fed hike in December, for reasons similar to those in September: to prevent pass-through to consumer prices and wages.”

However, the CME Group's FedWatch Tool indicates that traders are still pricing in around an 85% chance that the US central bank will raise borrowing costs by the end of this year. Apart from this, uncertainties stemming from the ongoing conflicts in the Middle East and the widening Russia-Ukraine war provide a strong boost to the safe-haven Greenback. In the latest developments, Iran’s Foreign Minister, Abbas Araghchi, said that there is no military solution to the conflict with the US, but Tehran remains ready to return to war. Adding to this, Iranian parliament speaker Mohammad Bagher Ghalibaf said that the Strait of Hormuz will not be opened until our conditions are met.

Furthermore, the head of Yemen’s governing body, Rashad al-Alimi, announced the start of military operations to retake the remaining territory held by the Houthis in the country. Separately, Ukraine reported deadly Russian air strikes on the Kyiv region, Kharkiv, and Dnipro on Sunday. In response, Ukrainian President Volodymyr Zelenskyy said in a post on X that Russia will definitely face a response to this. This keeps the geopolitical risk premium in play and favors USD bulls, warranting caution for XAU/USD bulls. Traders now look to the release of the US ISM Services PMI, which, along with speeches by influential FOMC members, should provide some impetus to the Gold price.

XAU/USD 4-hour chart

Technical Analysis

The XAU/USD pair keeps a bearish near-term tone below the 100-period Simple Moving Average (SMA) on the 4-hour chart and the 61.8% Fibonacci retracement level at $4,225.30. Moreover, the Relative Strength Index (RSI) at 40.92 hovers below the midline, while the Moving Average Convergence Divergence (MACD) indicator slips marginally into negative territory with a flat histogram. This together suggests waning upside momentum and reinforces the idea of gold being capped by overhead resistance.

Meanwhile, initial resistance is located at the 61.8% retracement at $4,225, followed by the 100-period SMA at $4,269, with higher barriers at the 50% retracement at $4,314 and the 38.2% level at $4,403. On the downside, immediate support emerges at the 78.6% Fibo. retracement at $4,098, ahead of a more important structural floor near the prior swing low at $3,936, where sellers could hesitate on a deeper pullback.

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