Gold holds near one-week top, around $4,200 on softer USD; hawkish Fed caps gains

• Gold scales higher for the third straight day amid a softer USD and the recent pullback in US bond yields.
• The Fed’s hawkish outlook and geopolitical uncertainties could help limit losses for the safe-haven buck.
• Traders also seem hesitant ahead of US inflation figures and Fed Chair Warsh’s speech later this week.

Gold (XAU/USD) attracts some buyers for the third straight day, hitting an over one-week high during the Asian session on Monday, though it lacks follow-through. Crude oil prices declined amid hopes that the Russia-Ukraine energy ceasefire deal will ease global fuel shortages, reducing inflationary risks. This comes on top of the recent minor pullback in US bond yields from multi-year highs and weighs on the US Dollar at the start of a new week, supporting the precious metal. However, the US Federal Reserve's (Fed) hawkish outlook and the US-Iran standoff limit USD losses, capping gains for the commodity.

Dollar upside risks linger as energy pullback cools bond rout

Brown Brothers Harriman’s Elias Haddad observes that a “modest pullback in energy prices eased the global bond sell-off and took some steam out of the USD rally.” However, he cautions that “US growth outperformance and strong foreign appetite for US securities keep USD risks skewed to the upside,” suggesting that any pause in Dollar strength may prove temporary.

Market participants have been pricing out the possibility of a rate hike at the late-October Fed meeting, though expectations for a 25-basis-point increase in December remain firmly on the table. According to CME Group's FedWatch Tool, traders are currently assigning around an 85% probability that the US central bank will raise borrowing costs again by the year-end. The bets were lifted by the September FOMC meeting minutes, released last Wednesday, which confirmed that policymakers still view inflation as the dominant threat to macroeconomic stability and back the case for further policy tightening.

In the Middle East, the Iran-backed Houthi group in Yemen escalated its campaign against Saudi Arabia, targeting Riyadh’s King Khalid International Airport with a mix of ballistic and cruise missiles, as well as drones over the weekend. The deadly attacks drew a Saudi vow of retaliation, with US President Donald Trump raising the possibility of joining strikes on the group and resuming attacks on Iran. Furthermore, Iran’s top security official declared Washington’s response to its proposal for reopening the strategic Strait of Hormuz insufficient. This keeps the geopolitical risk premium firmly in play.

The fundamental backdrop might hold back USD bears from placing aggressive bets. Traders might also opt to wait on the sidelines ahead of the release of US inflation figures – Producer Price Index (PPI) and Consumer Price Index (CPI) on Wednesday and Thursday, respectively. Apart from this, Fed Chair Kevin Warsh's speech at the annual meetings of the IMF and World Bank in Bangkok on Friday would drive the USD and the non-yielding Gold. Nevertheless, the aforementioned factors make it prudent to wait for strong follow-through buying before confirming that the XAU/USD has formed a near-term bottom.

XAU/USD 4-hour chart

Technical Analysis

The precious metal currently trades near a confluence hurdle – comprising the 23.6% Fibonacci retracement and the 100-period Simple Moving Average (SMA) on the 4-hour chart. Despite this overhead supply, momentum is constructive, with the Relative Strength Index (RSI) at 63.9 edging toward overbought territory and the Moving Average Convergence Divergence (MACD) remaining positive and elevated. This, in turn, suggests that bulls are attempting to extend the rebound but still need a clean break above the immediate ceiling to regain firmer control.

Hence, a sustained move beyond the $4,215-$4,220 confluence would open the way toward the next Fibonacci resistance cluster at $4,303 and then $4,378, ahead of higher retracement barriers at $4,452, $4,558 and the cycle-high area near $4,693. On the downside, initial structural support emerges only much lower at the $4,100 mark ahead of the Fibonacci anchor around $4,063. A failure to defend that floor would signal that the broader downtrend is resuming and set the stage for a slide further below the $4,000 psychological mark.

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