Gold struggles below $4,500 as Oil-driven inflation fears reaffirm Fed hike bets
- Gold meets with a fresh supply on Wednesday amid fears that rates would stay higher for longer.
- Rising Oil prices fuel inflationary concerns, bolstering expectations for more hawkish central banks.
- Bets that the Fed will raise rates in 2026 support the USD, further weighing on the precious metal.
Gold (XAU/USD) extends the previous day's late pullback from the vicinity of the $4,550 level and attracts some follow-through selling during the Asian session on Wednesday. Crude Oil prices rise for the third straight day amid renewed hostilities in the Middle East, reviving inflationary concerns and reaffirming market bets that interest rates would stay higher for longer. This, in turn, is seen as undermining the non-yielding yellow metal. Furthermore, geopolitical uncertainties assist the US Dollar (USD) in preserving its weekly gains, which turns out to be another factor that keeps the commodity depressed below the $4,500 mark, near the lower end of its weekly range.
In the latest developments surrounding the Middle East crisis, the US military’s Central Command (CENTCOM) said its forces conducted “self-defence” strikes on Iran’s Qeshm Island. In response, Iran launched a series of missiles and drones on US military facilities in Kuwait and Bahrain, though US and Gulf air defence systems intercepted most of the attacks. Adding to this, fighting between Israel and Hezbollah has also intensified. Furthermore, the lack of a breakthrough in US-Iran diplomatic negotiations, amid a standoff over Tehran's nuclear program and the Strait of Hormuz, raises the risk of a further escalation of tensions in the region and keeps geopolitical risks in play.
Meanwhile, US Secretary of State Marco Rubio said that Washington will not remove sanctions on Iran in exchange for a full reopening of the Strait of Hormuz, adding that any sanctions relief is conditioned on Iran giving up enriched uranium. That said, US President Donald Trump announced the open-ended extension of the ceasefire and the continuation of a US blockade until negotiations are concluded "one way or the other.” This helps Crude Oil prices to move further away from a one-month low touched last Friday, deepening fears about inflation and bolstering expectations for a more hawkish stance by major central banks, including the US Federal Reserve (Fed).
Adding to this, Cleveland Fed President Beth Hammack said on Tuesday that the central bank remains firmly committed to getting inflation back to 2% and may need to act soon if inflation trends don't cool. Moreover, the CME Group's FedWatch Tool suggests that traders are now assigning over a 50% probability that the Fed will raise borrowing costs by 25 basis points (bps) at the December policy meeting. The outlook remains supportive of elevated US Treasury bond yields, underpinning the USD and contributing to a weaker tone surrounding the Gold price.
XAU/USD 4-hour chart
Gold remains vulnerable within descending channel and below 200-EMA on H4
From a technical perspective, the XAU/USD pair maintains a bearish bias within a downward parallel channel and below the 200-period Exponential Moving Average (EMA) on the 4-hour chart. Meanwhile, the Relative Strength Index (RSI) hovers near 46, hinting at slightly negative but not oversold momentum. Moreover, the Moving Average Convergence Divergence (MACD) line has slipped back below zero with a negative reading, suggesting that recent attempts to stabilize are losing traction within the broader descending structure.
The setup suggests that any attempted recovery might continue to face initial resistance at the 200-EMA near $4,598.83. The upper boundary of the descending channel around $4,634.83 forms a secondary barrier that would need to be reclaimed to ease the current bearish tone. On the downside, the lower boundary of the channel near $4,322.55 offers the next significant support, and a clear break below this floor would reinforce the prevailing downtrend and open the way for deeper losses.
(The technical analysis of this story was written with the help of an AI tool.)
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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