Gold bounces off weekly low; Fed hike bets and modest USD recovery keep upside limited

• Gold remains depressed for the fourth straight day amid a combination of negative factors.
• Oil-driven inflation fears lift December rate hike bets and weigh on the non-yielding bullion.
• Iran diplomacy hopes act as a headwind for the USD, limiting losses for the precious metal.

Gold (XAU/USD) recovers slightly from the weekly low, around the $4,100 neighborhood touched earlier this Wednesday, though the upside potential seems limited amid a bearish fundamental backdrop. Inflation risks stemming from volatile oil prices underpin prospects for further policy tightening by the US Federal Reserve (Fed). Furthermore, a modest US Dollar (USD) recovery from a near three-week low, touched on Tuesday, could contribute to capping bullion.

Crude oil prices staged a dramatic intraday turnaround from an over one-month peak on Tuesday amid renewed hopes for US-Iran peace talks. In fact, an unconfirmed report said that Qatar and Pakistan had offered a middle-ground plan to the US and Iran that met the demands of both sides. However, Bloomberg later reported that a diplomat involved in US-Iran negotiations disputed news suggesting that a deal was close. Moreover, state media said Iranian Parliament Speaker Mohammad Bagher Ghalibaf told Pakistan’s Army Chief, Asim Munir, that the US could not earn Iran’s trust without meeting previously declared conditions, including the cessation of all hostilities and the unfreezing of the country’s assets. This, in turn, tempered expectations of an imminent breakthrough.

Adding to this, Iran’s First Vice President said the country had no choice but to exercise sovereignty over the Strait of Hormuz, exacerbating worries over crude supply disruptions and assisting oil prices to rebound swiftly from the weekly low. This comes on top of hot US inflation figures, released last week, and reaffirms market bets for an imminent Fed rate hike. According to the CME Group's FedWatch Tool, traders are currently pricing in over a 90% chance that the US central bank will raise borrowing costs again in December. Furthermore, the uncertainty surrounding the Middle East crisis offers some support to the safe-haven Greenback, which turns out to be another factor exerting downward pressure on the Gold price for the fourth day in a row and backs the case for deeper losses.

Fed path seen steady in October with December flagged as final hike

Analysts at BNY Markets underline that they “don’t expect an October rate hike next week, and market expectations agree,” noting that “at present the market is pricing only a 17% chance of a hike at the next FOMC.” Instead, they “do think December is the next likely opportunity for an increase in the federal funds rate and expect that to be the last hike in this cycle.” Looking further out the curve, BNY points out that “the implied federal funds rate for December 2027 is now only 4.64%, implying just under 75bp of additional rate hikes,” with these market expectations “actually slightly below their most hawkish levels from just a few weeks ago.”

Investors, however, might refrain from placing aggressive directional bets and opt to wait for more cues about the Fed's policy path. Hence, the focus will remain glued to the outcome of a two-day FOMC policy meeting on October 28 and the US Personal Consumption Expenditures (PCE) Price Index – the Fed's preferred inflation gauge due for release on October 29. Apart from this, next week's monetary policy updates from other major central banks – the Reserve Bank of New Zealand (RBNZ), the Bank of Canada (BoC), the European Central Bank (ECB) and the Bank of Japan (BoJ) – should provide some meaningful impetus to the non-yielding Gold. Nevertheless, the broader fundamental backdrop favors XAU/USD bears and suggests that the path of least resistance remains to the downside.

XAU/USD 4-hour chart

Technical Analysis

The overnight failed attempt to clear the 100-period Exponential Moving Average (EMA) on the 4-hour chart and the subsequent slide validate the negative outlook. Moreover, the Moving Average Convergence Divergence (MACD) remains in negative territory with its latest reading at -4.65, while the Relative Strength Index (RSI) sits at 39.16, reinforcing a weak momentum backdrop without yet signaling oversold conditions. Weakness below the $4,100 mark would reaffirm the bearish bias and expose the monthly swing low, around the $4,066 area.

Some follow-through selling would make the Gold price vulnerable to accelerating the downfall further toward the $4,000 psychological mark en route to the year-to-date low, around the $3,943-$3,942 region, touched in June. On the topside, the 100-period EMA around $4,175 might continue to act as an immediate strong resistance. Sustained strength above this barrier would be needed to ease the current bearish tone and open the way for a stronger recovery phase.

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