Gold declines below $4,300 as rising oil prices and hawkish Fed stance dampen appeal
- Gold price loses momentum to around $4,275 in Friday’s early Asian session.
- A fresh jump in oil prices raises inflation fears, weighing on the Gold price.
- Hawkish signals from Fed policymakers bolstered rate hike expectations.
Gold price (XAU/USD) declines to near $4,275 during the early Asian session on Friday. The precious metal extends the decline on growing bets on further Federal Reserve (Fed) interest rate hikes this year. New York Fed President John Williams and Cleveland Fed President Beth Hammack are set to speak later in the day.
Oil prices rebound after talks between the United States (US) and Iran showed little sign of progress, raising oil-driven inflation concerns. Additionally, yields on the US’s longest-dated bonds climbed to the highest level in more than two decades. A rise in oil prices has reinforced expectations that the US central bank will need to continue raising interest rates in order to quell above-target inflation.
Markets are now pricing in roughly a 67.5% chance that the Fed would hike rates by a quarter percentage point in October, up from 55.4% one week ago, according to the CME FedWatch tool. Higher interest rates typically weigh on gold because the precious metal does not pay interest, making yield-bearing assets relatively more attractive.
Fed policymakers struck a hawkish tone this week. Cleveland Fed President Beth Hammack said on Thursday that inflation pressures remain elevated, and the longer this situation persists, the harder it will be to bring price pressures back to target. Meanwhile, Philadelphia Fed President Anna Paulson stated that inflation needs attention, which might require further interest rate hikes.
China demand emerges as key pillar of gold market in 2026
Analysts at Commerzbank underscore the strength of China’s physical demand, noting that, “according to data from the customs authority, China imported more than 1,000 tons of gold in the first eight months of the year, already exceeding last year’s total.” They add that official sector buying has reinforced this trend, with the Chinese central bank having “purchased a good 80 tons of gold between January and August, with purchases increasing noticeably in recent months and reaching their highest level in nearly three years in August.” Commerzbank concludes that, on this basis, “China is therefore a key driver of gold demand this year.”
Fed’s paulson flags risk of further hikes as inflation stays stubborn
Fed’s Paulson delivers a notably hawkish message, with an FXS Speechtracker score of 8.1/10 compared to the established baseline of 7/10, underscoring heightened concern about persistent price pressures. The emphasis that the US central bank “may need to raise interest rates again” and that the September hike only moved policy into a “better inflation-fighting posture,” alongside comments that underlying inflation “remains stubbornly high” and is being driven in part by the AI buildout, signals a clear willingness to tighten further to restore inflation to 2%. At the same time, references to a resilient economy, stable labor market, and the fact that inflation has “not gotten worse” frame the policy stance as firmly focused on containing upside risks rather than responding to imminent deterioration.
The FXS Fed Sentiment Index was unchanged, moving 0.00 points to a still-elevated level of 148.18, reinforcing that the broader Fed communication backdrop remains deeply in hawkish territory. The combination of a high index level and an above-baseline FXS Speechtracker score suggests that, even without an incremental hawkish shift in the aggregate index, the Dollar narrative remains anchored in expectations of a prolonged restrictive stance and potential additional tightening.
Technical Analysis: Gold remains capped below the 100-day SMA
In the daily chart, XAU/USD retains a bearish near-term bias as it remains below the 100-day moving average (MA) and the Bollinger middle band. Price is holding above the lower Bollinger band, suggesting a corrective bounce cannot be ruled out, but the Relative Strength Index (14) around 44 keeps momentum tilted to the downside rather than signaling oversold conditions.
On the topside, initial resistance emerges at the 100-day MA around $4,310, followed by the Bollinger midline at $4,360, while the upper Bollinger band near $4,480 marks a stronger cap if gains extend. On the downside, the lower Bollinger band at $4,240 offers immediate support, and a daily close beneath this level would likely open the way for further retracement toward lower psychological and prior swing areas.
(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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