Gold Consolidates Near $4,175 as Rate Hike Fears Cap USD Weakness

Key Moments

Rangebound Trade for Gold as Dollar Softens

Gold (XAU/USD) is unable to extend the prior session’s modest advance and continues to fluctuate between slight gains and losses during Friday’s Asian session. The metal is trading in a tight band as the US Dollar (USD) drifts to a nearly two-week low following remarks by Federal Reserve (Fed) Chair Kevin Warsh at the Annual IMF and World Bank Group Meetings that did not materially change the interest-rate outlook.

In a discussion with International Monetary Fund (IMF) Managing Director Kristalina Georgieva, Warsh reiterated that the Fed is committed to achieving price stability and stated that he does not believe in prejudging policy meetings. His comments, combined with a pronounced pullback in US bond yields, are pressuring the USD and offering some underlying support to bullion.

Warsh Remarks Underscore Cautious but Hawkish Fed Stance

Warsh’s appearance registered a 5.6/10 reading on the FXS Speechtracker, slightly below the 6.1/10 benchmark, implying a somewhat less forceful but still broadly aligned message. His reference to being “over-scarred from the global financial crisis” points to a cautious policy bias even as he acknowledges structural growth and an investment upswing driven by “good policies,” signaling a guardedly hawkish posture that avoids committing to policy outcomes for October and December.

He also emphasized artificial intelligence (AI) as a near-term driver of demand and a tool to improve confidence in economic data, while highlighting negative tailside risks. This combination reinforces a risk-aware policy framework rather than a decisive shift in direction.

The FXS Fed Sentiment Index was unchanged, moving 0.00 points to 127.51, keeping the broader policy tone firmly in hawkish territory. The stable index reading, alongside the slightly lower FXS Speechtracker score, suggests the speech did not significantly intensify hawkish expectations but did maintain a strong restrictive bias that continues to offer some underlying support to the Dollar.

Firm Rate-Hike Bets on Inflation Data and Geopolitical Backdrop

Despite recent Dollar softness, an energy-led pickup in US inflation is keeping the possibility of a Fed rate hike by year-end firmly in play. On Wednesday, the US Bureau of Labor Statistics (BLS) reported a broad-based increase in consumer prices in September, as the US-Israeli war with Iran kept crude oil prices elevated.

Data on Thursday showed the US Producer Price Index (PPI) rising 1.3% in the most recent month, the biggest monthly increase since March 2022, with the annual rate jumping to 6.3%. Excluding the volatile food and energy categories, core PPI advanced 0.7% month-on-month and 5% year-on-year. These figures indicate that inflation pressures are extending beyond energy, reinforcing expectations for further Fed tightening.

According to the CME Group’s FedWatch Tool, market participants are currently pricing in over a 90% probability that the Fed will lift interest rates again at its December meeting. This backdrop, together with heightened geopolitical risk, is helping to limit downside moves in the safe-haven USD and, in turn, is restraining the upside in gold.

Middle East Tensions Support Safe-Haven Dollar, Cap Bullion

Escalating friction in the Middle East is providing an additional layer of support for the USD. The Iran-backed Houthi group has carried out a deadly missile strike on the presidential palace in Aden, the seat of Yemen’s Saudi-backed and internationally recognised government in the south of the country.

French Foreign Minister Pascal Confavreux has confirmed that France has begun deploying its military assets in Saudi Arabia. At the same time, the US military has developed strike plans that include ‘mother of all bombs’ targeting Iranian energy facilities and nuclear installations. These developments increase the risk of further regional escalation, a dynamic that could continue to underpin safe-haven demand for the Dollar and restrict gold’s ability to break higher.

Technical Picture: Key Levels Governing XAU/USD

On the technical front, XAU/USD is encountering persistent difficulty in holding above the 100-period Simple Moving Average (SMA) on the 4-hour chart and remains below the 61.8% Fibonacci retracement of the July-August rally. Nevertheless, the Moving Average Convergence Divergence (MACD) indicator is in positive territory and trending higher, signaling improving upside momentum. The Relative Strength Index (RSI) hovering around 56 points to mildly bullish conditions while staying comfortably away from overbought levels.

Traders are likely to look for a clear breakout from the current short-term range before positioning for a stronger directional move. A sustained push beyond the $4,200 area, followed by a decisive break of the 61.8% Fibonacci retracement at $4,238, would be needed to confirm a more constructive outlook.

A firm break above $4,238 could open the way for a move toward the next resistance band near the 50.0% retracement at $4,325 and then the 38.2% level at $4,412. On the downside, initial support is located at the 78.6% retracement at $4,115, followed by the $4,075-$4,065 horizontal zone. A decisive move below this latter region would expose the Fibonacci structural base at $3,957 and signal a deeper corrective phase for gold.