Gold falls to two‑month low below $4,050 as oil spikes
- Gold price attracts some sellers to around $4,025 in Friday’s early Asian session.
- Escalating Middle East hostilities are sending oil surging, weighing on gold price.
- Markets expect the Fed to hold rates steady next week, although traders see a chance of another rate hike in December.
Gold price (XAU/USD) falls to the lowest in more than two months near $4,025 during the early Asian session on Friday. The precious metal faces some selling pressure as escalating tensions in the Middle East send oil surging ahead of a Federal Reserve (Fed) policy meeting.
The global oil benchmark surged after deadly attacks in Saudi Arabia heightened concerns about regional supplies and stoked worries over an energy-driven inflationary shock. Elevated energy costs increase the possibility that the US central bank will need to further adjust monetary policy to contain price pressures.
Yemen's Houthi said that it carried out an attack on an airport in eastern Saudi Arabia on Wednesday evening. Additionally, the drone was intercepted as it attempted to target a processing facility owned by Saudi Arabia's state oil company Aramco in the Shaybah oil field, where a contractor's vehicle was set ablaze, per the BBC.
The Fed decided to raise interest rates last month for the first time since 2023, with markets anticipating further tightening later this year. Fed Chairman Kevin Warsh last week avoided signalling the outcome of this month’s policy meeting but noted that hotter-than-expected inflation had not changed his assessment of the US economy.
According to the CME FedWatch tool, the chance of no change in rate at the October meeting now stands at 92.8%. Higher interest rates typically weigh on gold because the precious metal does not pay interest, making yield-bearing assets relatively more attractive.
Gold consolidates below key resistance as Societe Generale flags downside risks
Analysts at Societe Generale note that Gold has "carved out an interim low near $4,065 earlier this month and has since evolved within a narrow consolidation." They highlight that "the upper boundary of this range at $4,200/4,225 represents a short-term resistance zone," cautioning that "failure to overcome this hurdle could denote the risk of a deeper pullback." On the downside, the bank points out that "the lower boundary of the consolidation near $4,065 serves as the first support," warning that "a break below this may extend the decline towards the June low at $3,960/3,940 and projections near $3,830."
Warsh flags investment surge and AI risks as Fed keeps options open into year-end
Fed Chair Warsh delivered a moderately cautious tone, with the FXS Speechtracker score of 5.6/10 coming in softer compared to the established baseline of 6.1/10, suggesting slightly less conviction than usual. The admission of being “over-scarred from the global financial crisis” underscores a bias toward risk management and vigilance on financial stability even as Warsh highlights a structural growth and investment surge driven by “good policies.” Emphasis on not pre-judging the October and December meetings keeps policy optionality high, reinforcing a data-dependent stance as the Fed “crystalizes” views on output, employment, and inflation while closely watching AI’s demand-side effects and tail risks.
The FXS Fed Sentiment Index was unchanged, with a 0.00-point move leaving the level at a firmly hawkish 127.51, signaling that despite a slightly softer speech score, the broader policy backdrop remains restrictive. The combination of a high index reading and a mid-range FXS Speechtracker score suggests markets still price a hawkish Fed reaction function, even as Warsh stresses flexibility and acknowledges uncertainty around AI and near-term employment impacts.
Technical Analysis: Gold remains capped under the 100-day SMA
In the daily chart, XAU/USD extends a bearish near-term bias as spot remains below a dense band of moving average and volatility-based resistances. The 20-day Bollinger middle band and the 100-day simple moving average (SMA) both sit above price, suggesting rallies are likely to be sold while the metal trades under these reference lines. The Relative Strength Index (RSI) at 35 hovers just above oversold territory, hinting that downside momentum is still present but could slow as conditions turn increasingly stretched.
On the topside, initial resistance emerges at the lower Bollinger band around $4,055, followed by the 20-day Bollinger middle band near $4,150. Higher up, the 100-day SMA at about $4,230 and the upper Bollinger band close to $4,245 form a broader supply zone that would need to be reclaimed to ease the prevailing bearish pressure and open the door to a more sustained recovery.
(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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