Gold weakens below $3,950 as USD bulls retain control amid Fed hike bets, Iran risks

• Gold drifts lower for the third straight day as the post-US CPI USD buying remains unabated.
• Firming Fed rate hike bets and Middle East risks lift the safe-haven USD to April 2025 highs.
• The setup suggests that the path of least resistance for XAU/USD remains to the downside.

Gold (XAU/USD) attracts heavy follow-through selling for the third straight day on Thursday, sliding further below $3,950 during the first half of the European session. The US Dollar (USD) buying remains unabated amid firming Federal Reserve (Fed) rate-hike expectations, bolstered by hot US consumer inflation figures. Adding to this, Middle East uncertainties further underpin the safe-haven buck, which, in turn, is seen as a key factor exerting downward pressure on the commodity.

The October US Consumer Price Index (CPI) report, released earlier this week, underpinned prospects for further policy tightening by the Fed. Moreover, hawkish comments from several influential FOMC members reaffirmed market bets that the US central bank will raise borrowing costs again in December. Adding to this, traders have also started pricing in the possibility of a jumbo 50-basis-point (bps) rate hike next month. The outlook pushed the yield on the benchmark 10-year US government bond back above the 5% threshold on Wednesday and continues to act as a tailwind for the Greenback.

Fed hawks firm up December hike expectations as political-pressure fears fade

Analysts at Rabobank highlight that the market’s response to the latest hawkish signals from Fed officials, “including those from Waller that put the risk of a 50-bps rate hike on the table,” goes beyond the immediate repricing of the policy path. They note that the market is now “fully priced for a December rate hike,” and, crucially, that these comments were “met with no real speculation that the Fed would be pressured by political forces not to raise rates.”

Rabobank adds that “since Fed Chair Warsh surprised the market with a hawkish position at Jackson Hole in August, fears about diminished Fed credibility have dissipated.” In their view, “the results of last week’s midterm elections suggest less reason to expect pressure from the White House,” reinforcing the perception that the Fed can proceed with its tightening plans without significant political interference.

Meanwhile, the geopolitical risk premium remains in play amid the US-Iran standoff over the Strait of Hormuz, with both sides striking islands in the waterway in recent days. In fact, US forces reportedly carried out a series of strikes on Iran's Qeshm Island, while Tehran attacked ship navigation systems on the Omani island of Didamar, located at the entrance of the Persian Gulf. Moreover, Iranian Armed Forces Deputy Chief of Staff Brigadier General Kioumars Heidari said that Tehran has closed the strategic waterway and will not open it except by the order of the leader of the revolution.

The aforementioned factors lift the USD Index (DXY), which tracks the Greenback against a basket of currencies, to its highest level since April 2025 and back the case for additional gains. This, in turn, suggests that the path of least resistance for the Gold price remains to the downside and any attempted recovery is more likely to be sold into. Traders now look to the release of the usual Weekly Initial Jobless Claims data from the US and speeches from Fed officials. Apart from this, incoming geopolitical headlines might infuse volatility, providing some impetus to the buck and the XAU/USD pair.

XAU/USD 1-hour chart

Technical Analysis

The precious metal maintains a bearish near-term tone following the previous day's rejection near the 100-hour Exponential Moving Average (EMA) at $4,044. A subsequent fall below the 50.0% retracement and acceptance below the $4,000 psychological mark validate the negative bias. That said, the Moving Average Convergence Divergence (MACD) indicator has just turned marginally positive. Meanwhile, the Relative Strength Index (RSI) is hovering near 31 and only recovering slightly from the oversold territory. Momentum indicators merely hint at stabilization rather than a decisive upside reversal, while gold remains capped by clustered resistance overhead.

In the meantime, immediate support is seen at the 61.8% retracement at $3,976, ahead of deeper Fibonacci floors at $3,930 (78.6%) and $3,870 (100%), where buyers could attempt to defend the broader uptrend if the current pullback extends. On the topside, initial resistance emerges at the 50.0% retracement at $4,009, followed by a dense barrier around the 38.2% retracement at $4,041 aligned with the 100-period EMA at $4,044. A sustained strength above the latter would open the way toward the 23.6% retracement at $4,082 and the cycle high anchor near $4,147.

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