Gold extends losses as rising Oil prices reinforce Fed rate hike bets
- Gold falls toward $4,100 as rising energy prices keep inflation concerns elevated.
- Traders expect another Fed interest rate hike by December, keeping pressure on bullion.
- XAU/USD remains below its key daily SMAs, keeping the broader technical outlook bearish.
Gold (XAU/USD) drifts lower on Tuesday, extending losses for a third consecutive day as rising Oil prices linked to tensions in the Middle East keep global inflation risks tilted to the upside, reinforcing expectations that interest rates will remain higher for longer. At the time of writing, XAU/USD trades around $4,123, down 0.42% on the day.
West Texas Intermediate (WTI) Oil climbs above $100, reaching its highest level in more than a month as Houthi attacks on Saudi energy infrastructure and an increase in attacks on vessels in the Strait of Hormuz fuel concerns over supply disruptions.
Elevated energy prices remain a key source of inflation pressure since the war erupted in late February, prompting major central banks to raise interest rates this year and keeping markets alert to further tightening.
In the United States, September’s Consumer Price Index (CPI) and Producer Price Index (PPI) reports both came in hotter than expected, strengthening expectations that the Federal Reserve (Fed) could deliver another rate hike before year-end as it seeks to bring inflation back toward its 2% target.
These hawkish expectations help cushion the downside in the US Dollar (USD) and US Treasury yields following their recent pullback. Higher borrowing costs weigh on non-yielding Gold by making interest-bearing assets more attractive, while a stronger US Dollar makes the metal more expensive for buyers holding other currencies.
The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 101.88, down 0.10% on the day but above last week’s low of 101.58. Meanwhile, the benchmark 10-year US Treasury yield stands near 5.13%, recovering from last week’s low of 5.03%.
However, traders widely expect the Fed to leave interest rates unchanged at its October 27–28 meeting, as policymakers appear cautious about delivering back-to-back increases following September’s 25-basis-point hike. The CME FedWatch Tool shows traders pricing in a 15% chance of a rate hike this month and an 89% chance of an increase in December.
Looking ahead, a light US economic calendar leaves Gold vulnerable to movements in Oil prices, the US Dollar and Treasury yields, with the hawkish Fed outlook acting as a strong headwind.
Technical analysis: XAU/USD remains rangebound below key daily SMAs
On the daily chart, XAU/USD maintains a pattern of lower highs and lower lows since peaking near $4,700 in late August, although prices remain largely trapped between $4,100 and $4,200 since the start of the month.
The metal trades below the 50-day, 100-day and 200-day Simple Moving Averages (SMAs), which reinforces a capped tone despite some improvement in momentum, with the Relative Strength Index (RSI) hovering in the low-40s and the Moving Average Convergence Divergence (MACD) turning positive above the zero line.
On the topside, initial resistance lies at the $4,200 psychological mark, followed by the 100-day SMA at $4,235 and the 50-day SMA at $4,321. A stronger recovery would face the $4,400 horizontal barrier ahead of the 200-day SMA at $4,517. On the downside, a sustained break below $4,100 could open the door toward the $4,000-$3,950 support zone.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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