Gold Falls Below $4,100, Risks Dropping to $4,000 as High Oil Prices Reinforce Expectations of High Fed Rates

TradingKey - During the Asian session on October 22, gold prices (XAUUSD) weakened further in intraday trade, with spot gold falling below the $4,100 mark to hit a low of $4,066.56, its lowest level since October 14. As oil prices have remained high recently, market concerns that energy prices will drive up inflation and extend the Federal Reserve's high-interest-rate cycle have intensified, leaving gold under continued pressure.

As of press time, intraday losses in spot gold briefly approached 2%, trading around $4,070. After consolidating around $4,100 for several consecutive trading days, gold prices officially broke below this key psychological level today, further expanding short-term downside pressure.

From a fundamental perspective, oil prices have been an important factor affecting gold price trends recently. Brent (UKOIL) crude oil recently reclaimed $110, with Middle East tensions keeping crude supply risks elevated. Higher energy costs could increase subsequent U.S. inflation pressure, prompting the market to continue assessing how long the Federal Reserve will maintain its restrictive monetary policy.

Regarding interest rate expectations, the Federal Reserve will hold its policy meeting on October 27–28. According to the CME FedWatch Tool, market expectations for another rate hike this month remain relatively limited, with traders pricing in an approximately 16% probability of an October rate hike; however, expectations for a December rate hike remain high, with a probability close to 90%. Higher real interest rate expectations increase the opportunity cost of holding non-yielding gold.

Gold Price Daily Chart, Source: TradingView

Currently, after gold fell below $4,100, it faces key support at $4,066 below. If this level is lost, gold will open up downside space toward $4,000; on the upside, it needs to reclaim $4,140 to relieve short-term downward pressure. Going forward, the market will focus on the Federal Reserve's rate decision and the latest U.S. PCE inflation data, both of which could further influence the U.S. dollar, interest rate expectations, and gold price movements.