Gold declines below $4,000 as higher oil prices reinforce Fed rate-hike expectations
- Gold price remains on the defensive around $3,995 in Monday’s early Asian session.
- Higher energy prices fueled inflation concerns and reinforced US rate hike expectations.
- Traders see a 90.6% chance the Fed will leave rates unchanged this week and a 79.4% probability of a December hike.
Gold price (XAU/USD) declines to near $3,995 during the early Asian session on Monday. The precious metal remains under some selling pressure near its lowest since July as elevated energy prices reinforced inflation concerns before the Federal Reserve’s (Fed) next policy meeting.
WTI crude oil price reached a more than five-month high after Houthi attacks in Saudi Arabia stoked concern over further disruption to energy supplies.
Uncertainty in the Middle East remains high as US President Donald Trump said over the weekend that it’s “getting to be decision time” on whether he will make a deal with Tehran or resume attacks as Iranian and Houthi threats against Americans in the Middle East continue to grow.
“Gold is being weighed down by concerns around oil prices, rates and the Fed outlook,” said Ryan McKay, senior commodity strategist at TD Securities. “At the margin, flows have also been negative, with heavy CTA selling this week adding to the pressure.”
While traders see a small chance of a quarter-point rate increase at the policy meeting next week, higher oil prices have also prompted bets on another hike in December. Higher interest rates typically weigh on gold because the precious metal does not pay interest, making yield-bearing assets relatively more attractive.
Markets are now pricing in a 79.4% likelihood that the Fed will raise interest rates in December, according to the CME FedWatch tool, with 90.6% odds that the US central bank will hold rates unchanged at its upcoming meeting this month.
Gold slides as oil surge revives Fed tightening fears
Strategists at OCBC report that gold "came under renewed selling pressure overnight, falling more than 2.5%," even as broader markets were roiled by a global tech selloff. They note that "Brent’s sharp rise amid renewed Middle East supply concerns added to inflation worries and expectations that the Fed may need to keep rates restrictive for longer," compounding the headwinds for the metal. What OCBC finds particularly notable is that "gold continued to weaken even as US Treasury yields fell sharply," underscoring that "neither lower yields nor heightened geopolitical uncertainty has been sufficient to support gold, suggesting that near-term sentiment remains fragile."
Against this backdrop, the bank says "we remained cautious in the near term, particularly as gold has struggled to respond positively to the recent decline in yields." Looking ahead, OCBC argues that "an easing in oil prices and further decline in real yields could help gold stabilise," but stresses that they "would want to see a better price response before turning more constructive in the near-term."
Warsh flags investment surge and AI risks as Fed keeps options open
Fed Chair Warsh’s remarks score 5.6/10 on the FXS Speechtracker, modestly below the 6.1/10 historical average, pointing to a slightly less impactful tone relative to the established baseline despite broadly steady policy messaging. The admission of being “over-scarred” by the Global Financial Crisis, combined with emphasis on an investment surge driven by “good policies” and caution about AI’s uncertain employment impact, underscores a risk-aware stance that balances optimism on structural growth with sensitivity to downside tails. Warsh’s refusal to pre-judge the October and December meetings keeps the policy path deliberately opaque, limiting immediate repricing in Dollar expectations.
The FXS Fed Sentiment Index was unchanged, moving 0.00 points to a still-elevated level of 127.51, signaling that the speech left the perceived policy stance firmly in hawkish territory. The steady index reading, alongside a slightly softer FXS Speechtracker score, suggests markets see no material shift in the Fed’s reaction function, with Dollar support underpinned by high conviction on price stability and vigilance over financial stability risks.
Technical Analysis: Gold retains a negative outlook below the 100-day SMA
In the daily chart, XAU/USD keeps a bearish near-term bias as spot remains capped beneath the 100-day simple moving average (SMA) and the 20-day Bollinger middle band. Price also trades below the lower Bollinger band, underscoring downside pressure after the recent break of the envelope, while the Relative Strength Index (14) at 34.13 hovers just above oversold territory, hinting that selling momentum is still dominant but nearing stretched conditions.
On the topside, initial resistance emerges at the lower Bollinger band around $4,015, followed by the Bollinger 20-day SMA at $4,130. Above that, the 100-day SMA at $4,220 and the upper Bollinger band at $4,240 form a broader supply zone that would need to be reclaimed to ease the current bearish tone and open the way for 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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