Gold Stalls as Firm Dollar Caps Gains Ahead of US Data

Key Moments

Gold Holds Bearish Tone as Dollar Demand Returns

Gold (XAU/USD) is attempting a modest recovery from the daily trough but continues to trade with a bearish intraday bias below $4,050 during the early part of Thursday’s European session. The precious metal remains under pressure as the US Dollar attracts renewed buying interest following Wednesday’s pullback from a two-week high after the FOMC decision, limiting upside for bullion.

Fed Stance and Rate Expectations Support the Greenback

The US Federal Reserve left interest rates unchanged at the conclusion of its October policy meeting, a move that had been broadly anticipated. The decision came on a 10-2 vote, with Governor Lisa Cook and Cleveland Fed President Beth Hammack favoring a 25-basis-point increase.

During the post-meeting press conference, Fed Chair Kevin Warsh indicated that the central bank remains alert to persistent inflation risks and geopolitical uncertainties. Coupled with concerns over energy-related price pressures, this backdrop is sustaining expectations for additional policy tightening.

Data from the CME Group’s FedWatch Tool show that market participants are currently pricing in roughly an 80% probability that the Fed will raise rates at its December meeting. These hawkish expectations are lending support to the US Dollar and encouraging a shift away from non-yielding gold.

Geopolitical Tensions Reinforce Safe-Haven Dollar Demand

Heightened geopolitical risks are further underpinning the US currency. The Wall Street Journal reported on Tuesday that US officials have advised several Gulf Arab states to brace for a short but intense military operation against Iran after the November 3 midterm elections.

In response, Iranian Foreign Minister Abbas Araghchi stated that the country’s armed forces are prepared to defend Iran, while emphasizing that Tehran will maintain close engagement with intermediaries to keep diplomatic channels open. At the same time, regional mediators led by Qatar are seeking to revive talks between the US and Iran to avert a resumption of hostilities.

Separately, US Vice President JD Vance has reportedly sent a letter to Mohsen Rezaei, secretary of Iran’s Supreme National Security Council, as part of efforts to restart peace discussions.

Middle East Developments Add to Risk Premium

Geopolitical tensions remain elevated as heavy fighting continues between the Iran-backed Houthi movement and the Saudi Arabia-backed government in Yemen. In the latest reported escalation, the Houthis on Tuesday said they had struck Saudi Arabia’s Ras Tanura oil refinery, the kingdom’s largest, with a ballistic missile.

Earlier this week, attacks on pumping facilities along Saudi Arabia’s East-West oil pipeline heightened concerns over potential supply disruptions and lent support to crude oil prices. The combination of firmer oil and geopolitical uncertainty is seen favoring US Dollar strength, reinforcing the view that gold’s near-term path of least resistance is still to the downside.

However, market participants may be reluctant to adopt aggressive positions ahead of key US macroeconomic releases, including the Advance Q3 GDP report and the Personal Consumption Expenditures (PCE) Price Index, which could provide fresh direction for both the Dollar and gold.

XAU/USD Technical Picture: Downtrend Still Dominant

The XAU/USD pair has been sliding over roughly the past month within a downward-sloping channel on the 4-hour chart and continues to exhibit a negative short-term bias while trading below the 100-period Exponential Moving Average (EMA). At the same time, the Moving Average Convergence Divergence (MACD) indicator has flipped into positive territory, and the Relative Strength Index (RSI) is hovering close to neutral levels around 47.5.

These improving momentum readings suggest the potential for a corrective rebound but do not negate the broader downtrend established by the descending channel.

On the upside, any attempted recovery is likely to meet initial resistance near the 100-period EMA around $4,105, with a more significant hurdle at the upper boundary of the descending channel near $4,125, an area where sellers may reassert themselves.

On the downside, the $4,000 psychological region is expected to offer the next notable support, ahead of the lower band of the channel around $3,946. A clear move below this latter level would confirm the prevailing bearish setup and could pave the way for additional declines in the sessions ahead.

Gold Market Background – FAQs

Why do investors hold gold?

Gold has historically served as both a store of value and a medium of exchange. Beyond its appeal in jewelry, it is widely regarded as a safe-haven asset, viewed as a potential refuge during periods of market or economic stress. It is also commonly perceived as a hedge against inflation and currency depreciation, as its value is not tied to any particular government or issuer.

Who are the largest gold buyers?

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.

How does gold relate to other asset classes?

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.

What drives gold prices?

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.