Gold Rises as Soft USD, Lower Yields Ease Fed Hikes

Key Moments

Gold Firms as Dollar Retreats from 18-Month Peak

Gold (XAU/USD) is trading with a firmer tone in early European dealings on Thursday, extending modest intraday gains as the US Dollar weakens and US bond yields pull back. The move comes after the metal ended a three-session decline that had driven prices to a one-week low on Wednesday.

The initial sharp market response to stronger-than-expected US consumer inflation data has faded, as investors appear less convinced that the Federal Reserve will move quickly to raise interest rates. The resulting drop in Treasury yields has triggered profit-taking in the Dollar and offered breathing room for the non-yielding metal.

US CPI Upside Surprise Forces Repricing of Fed Path

Data from the US Bureau of Labor Statistics on Wednesday showed that headline Consumer Price Index (CPI) inflation accelerated from 3.4% to 3.7% over the 12-month period through September, exceeding market expectations. Core CPI, which removes the effects of food and energy, rose 2.6% year-on-year, up from 2.4% in August. The figures point to more persistent and broad-based price pressures and have pushed market participants to reconsider the future course of Fed policy.

However, San Francisco Fed President Mary Daly signaled that while policy still likely needs to tighten further, there is no urgency for a move at the October meeting. She said the central bank will probably need to raise interest rates further, though she indicated there is no need to act at that gathering.

Daly’s Remarks: Hawkish Bias with a Cautious Pace

According to the FXS Speechtracker, Daly’s latest comments scored 6.8/10, marking a somewhat more hawkish stance than the historical average score of 6.1/10. This underscores a policy bias that keeps additional rate hikes in play. Her focus on gas-driven increases in headline inflation alongside sticky core inflation, and her view that more tightening is likely but should proceed cautiously, points to a preference for data-driven patience rather than immediate policy action.

Her emphasis on sustained above-target inflation risks, a still-resilient labor market, and clearer market understanding of the Fed’s reaction function supports a carefully hawkish narrative centered on communication and accountability.

At the same time, the FXS Fed Sentiment Index slipped by 0.84 points to 128.17, indicating a modest reduction in hawkish intensity while remaining well above the neutral 100 level. This configuration suggests that Fed communication continues to lean hawkish, but the marginal shift reflects a more measured tone on future moves rather than a ramp-up in Dollar-bullish rhetoric.

Fed Hike Odds, Energy Prices, and Geopolitics Underpin Dollar

Despite the recent pullback in yields and the Dollar, rate markets still assign more than an 85% probability that the Fed will raise interest rates again before year-end. Risks that inflation could be fueled further by volatile energy prices continue to support expectations of additional policy tightening.

At the same time, heightened geopolitical tensions are helping to maintain demand for the US Dollar as a safe-haven asset and may slow any deeper corrective slide from its highest level since April 2025. In the latest developments, a container ship sank in the Strait of Hormuz on Wednesday following a projectile strike, while the Iran-backed Houthi group persisted in launching drone and missile attacks across Saudi Arabia.

The Houthis also pledged to keep targeting Saudi Arabia’s international airport and oil infrastructure in the coming days, in response to what they describe as Saudi aggression against Yemen’s capital, Sanaa. Separately, Russia accused Ukraine of attacking two oil refineries, alleging a breach of an energy ceasefire that Russia says was recently brokered by US President Donald Trump. These events are maintaining a geopolitical risk premium that may continue to support the Dollar and discourage aggressive long positioning in gold.

Market attention now turns to the upcoming release of the US Producer Price Index (PPI) later today, which could provide further clarity on inflation trends and the likely path for Fed policy.

Upcoming Fed Communication in Focus

Beyond the PPI data, investors will closely monitor Fed Chair Kevin Warsh’s remarks at the annual meetings of the IMF and World Bank in Bangkok on Friday for additional guidance on the policy outlook. The implications for interest rate expectations are likely to influence the Dollar and, by extension, price action in gold.

Given the current backdrop and repeated failures by XAU/USD to maintain levels above $4,200, many market participants may prefer to see convincing follow-through buying before concluding that a durable short-term floor has been established in the $4,075-$4,065 area.

Technical Picture: Resistance Near $4,215-$4,220 Caps Upside

On the 4-hour chart, XAU/USD continues to trade below the 100-period Simple Moving Average (SMA), keeping a restrained tone in place. The Moving Average Convergence Divergence (MACD) indicator remains in negative territory and beneath its signal line, with a contracting histogram, pointing to lingering downside pressure even as the Relative Strength Index (RSI) stabilizes near the neutral 50 line.

A sustained move above the 100-period SMA, located around $4,180, would likely encounter initial resistance in the $4,215-$4,220 horizontal band. A clear break through this ceiling would be required to ease the prevailing bearish bias and open the door to further gains.

On the downside, the $4,100 level offers immediate support, followed by the $4,075-$4,065 zone. A decisive drop below that region would reinforce the negative technical outlook.