Gold Holds Firm as Softer Dollar Supports XAU/USD

Key Moments

Mixed Macro Backdrop Keeps Gold Range-Bound

Gold (XAU/USD) remains locked in a sideways consolidation heading into the European session on Thursday, holding above the $4,100 level and staying close to the more-than two-week peak seen the previous day. The metal is struggling to establish a stronger upward move as conflicting macro forces pull in opposite directions.

An intensification of tensions between the US and Iran is driving crude oil prices to their highest levels since June 11, heightening concerns about inflation and reinforcing expectations that the US Federal Reserve (Fed) could still deliver additional interest rate increases. The prospect of higher policy rates is supporting US Treasury yields near multi-month highs, which in turn is acting as a drag on non-yielding gold.

Geopolitical Risks and Energy Prices Fuel Inflation Concerns

The article notes that the US and Iran have exchanged strikes for a 12th consecutive night. At the same time, Yemen’s Iran-aligned Houthi group has opened a new front in the conflict by declaring a blockade on a critical Red Sea shipping lane that handles about 7% of global oil flows. This comes alongside a notable decline in shipping volumes through the Strait of Hormuz, amplifying worries about energy supply disruptions and helping crude extend its month-to-date advance.

Market participants remain concerned that higher energy costs could reignite inflation pressures and push central banks toward a more hawkish policy stance. That perception is feeding into expectations for additional Fed tightening and supporting US yields.

Fed Expectations, Treasury Yields, and the US Dollar

According to the CME Group’s FedWatch Tool, derivatives pricing currently reflects more than a 90% probability that the Fed will raise interest rates by the end of this year. This backdrop is consistent with elevated US bond yields, with the benchmark 10-year Treasury yield holding near a two-month high.

However, the impact of higher yields on gold is being partially offset by ongoing weakness in the US Dollar (USD). The latest bout of USD selling is providing some support to XAU/USD and helping to limit downside pressure. Against this backdrop, the article suggests it may be sensible to wait for stronger, sustained selling before concluding that the one-week-old uptrend in gold has definitively lost momentum.

Deutsche Bank View on Fed Repricing

Analysts at Deutsche Bank emphasize that the recent move in rates has come alongside a significant shift in policy expectations. They point out that investors have now “priced in a more hawkish path for the Fed, with 34bps of hikes now priced in by the December meeting, up +2.3bps on the day.” The analysts add that this repricing has contributed to the ongoing rise in US real yields and the broader selloff across the Treasury curve.

Upcoming Data and Event Risks for Gold

Traders are turning their attention to the release of the regular Weekly Initial Jobless Claims figures from the US, which could provide fresh direction during the early North American session. In addition, the highly watched European Central Bank (ECB) policy meeting has the potential to trigger volatility across financial markets.

Developments related to the Middle East situation are also expected to remain a key driver for short-term positioning in gold, as any further escalation could influence risk sentiment, energy prices, and inflation expectations.

XAU/USD Technical Overview – 4-Hour Chart

On the technical front, the XAU/USD pair has paused its one-week advance around the $4,155-$4,165 region. This zone aligns with a confluence of technical levels, including the 200-period Exponential Moving Average (EMA) on the 4-hour chart and the 23.6% Fibonacci retracement of the April-June decline. The article indicates that this area has now become a key reference point for short-term participants, particularly given the generally constructive momentum backdrop.

The Relative Strength Index (RSI) is positioned near 63, while the Moving Average Convergence Divergence (MACD) indicator remains in positive territory. Together, these signals imply that buyers still hold some advantage, although progress is being constrained by overhead supply near the mentioned resistance band.

The analysis suggests that gold would likely need to stage a decisive break above this clustered resistance to validate prospects for further gains. A sustained move beyond this area would expose the 23.6% Fibonacci retracement level at $4,164.97 and a more substantial barrier near the 38.2% retracement at $4,303.59.

On the downside, the main structural support is identified at the Fibonacci anchor around $3,940.90. A deeper retracement toward this level could attract renewed buying interest and potentially provide a more solid base for another attempt higher.