Gold Extends Three-Day Rally—Can Bulls Break Above $4,200?

Gold extended its recovery for a third straight session on Wednesday, with XAU/USD climbing toward $4,140 as investors continued to scale back expectations of a Federal Reserve rate hike at next week's policy meeting.

The precious metal has rebounded sharply after finding support near $3,950, recovering from its lowest level in nearly three weeks as easing rate expectations weakened pressure on non-yielding assets.

However, the rally could face a fresh challenge.

Crude oil prices continue to climb as tensions in the Middle East threaten global energy supplies, raising concerns that higher energy costs could slow the decline in inflation. If inflation expectations begin to rise again, markets may reassess the outlook for Federal Reserve policy, potentially supporting the US Dollar and limiting further gains in gold.

Technically, gold's near-term outlook has improved.

The metal has moved back above its 20-period EMA at $4,094, signalling that buyers have regained short-term control after defending the $3,950 support area.

Meanwhile, the RSI has recovered to around 51, suggesting bearish momentum has faded without the market becoming overbought.

The next key resistance is $4,202, the July high.

A decisive break above this level would confirm a double-bottom breakout, strengthening the bullish outlook and opening the way toward the $4,300 region.

On the downside, immediate support is located at the 20-period EMA near $4,094, followed by the $3,942 support zone.

For now, gold remains in recovery mode, but whether the rally extends further will largely depend on the balance between cooling Fed rate expectations and renewed inflation risks driven by higher oil prices.