Gold Holds Slight Gains Under $3,900 as Fed Limits Rise

Key Moments

Fundamental Drivers: Geopolitics vs Fed Expectations

Gold (XAU/USD) is posting only a mild advance on Monday, giving back part of its earlier intraday rise and trading just under the $3,900 level in early European dealings. The move comes as the US Dollar (USD) faces renewed selling interest amid optimism over a potential diplomatic opening in the US-Iran conflict, which in turn lends some support to the metal.

At the same time, market participants continue to anticipate the possibility of additional US Federal Reserve (Fed) rate increases in response to energy-related inflation risks. Those expectations are helping to limit broader USD weakness and are keeping the non-yielding metal pinned close to the October 2025 low reached on Friday.

Iran Talks, Regional Tensions, and Market Sentiment

Reports indicate that Iranian negotiators met for a third straight day on Sunday with Qatari intermediaries in an effort to advance an agreement aimed at ending the US-Israeli war on Iran. As part of these developments, Iran has outlined a 48-hour plan to reopen the Strait of Hormuz, subject to a series of conditions including the removal of sanctions imposed after the Islamabad memorandum and a reduction in US military presence in the area.

Adding to the tone of guarded optimism, US President Donald Trump said that discussions with Iran were going well and that Iran was seeking an agreement. However, Trump also noted that he had not excluded the option of further military action after the November 3 midterm elections.

In a countervailing sign of risk, Iran’s Supreme Leader, Mojtaba Khamenei, instructed senior military leaders to prepare for renewed confrontation with the US and Israel and to broaden Tehran’s potential retaliatory responses. Simultaneously, new Ukrainian strikes on Russian oil refineries are helping to sustain geopolitical risk premiums. This combination of factors is preventing a deeper slide in the USD and is encouraging caution among traders before committing to additional upside in Gold.

Fed Policy Outlook and Upcoming US Data

US economic data released last Thursday indicated solid growth and ongoing inflation pressures, reinforcing expectations for further Fed tightening. Based on the CME Group’s FedWatch Tool, market pricing currently reflects roughly a 75% probability that the Fed will deliver another rate increase in December.

In this context, analysts suggest that a more decisive and sustained buying phase would be required to signal a firm near-term bottom in XAU/USD. Attention is now turning to a series of key US macroeconomic releases at the beginning of the new month.

The US ISM Manufacturing PMI is due later on Monday, followed by the ISM Services PMI on Wednesday. The data calendar then culminates with the closely followed US Nonfarm Payrolls (NFP) report on Friday. Until those releases clarify the outlook, the prevailing backdrop suggests that any meaningful Gold rebound is likely to face selling pressure and remain constrained.

Technical Picture: Downtrend Intact Despite Oversold Signals

From a technical standpoint, Friday’s decisive move and subsequent acceptance below the $4,000 psychological threshold have been viewed as an important bearish signal. XAU/USD continues to trade well under the 100-period Exponential Moving Average (EMA) on the 4-hour chart, reinforcing the negative short-term bias.

The Moving Average Convergence Divergence (MACD) indicator stays in negative territory, with the MACD line positioned below its signal line and accompanied by a subdued histogram. At the same time, the Relative Strength Index (RSI) stands at 28.94, hovering in oversold territory and implying that recent downside momentum may be stretched in the very near term.

Even so, any recovery attempts are expected to encounter selling interest near the 100-period EMA, currently around $4,068.55. Technicians regard this zone as a crucial level that bulls would need to recapture to alleviate the current bearish tone. On the downside, traders are watching Friday’s swing low in the $3,870 area as a potential demand region; a clear break below that level would likely open the door to an extension of the established downtrend.

XAU/USD – Key Technical Levels (4-Hour Chart)

Federal Reserve: Policy Framework and Market Impact

Monetary policy in the United States is determined by the Federal Reserve (Fed), which operates under a dual mandate of maintaining price stability and promoting maximum employment. The Fed’s principal mechanism for pursuing these goals is the adjustment of benchmark interest rates.

When inflation runs above the Fed’s 2% objective and price increases are deemed too rapid, the central bank raises interest rates, lifting borrowing costs across the economy. This typically supports the US Dollar by making US assets more attractive to global investors. Conversely, if inflation falls below 2% or the unemployment rate is considered too high, the Fed may lower interest rates to stimulate borrowing and economic activity, a dynamic that tends to weigh on the Greenback.

Fed Meetings and Policy Tools

The Federal Open Market Committee (FOMC), the Fed’s policy-setting body, convenes eight times per year to evaluate economic conditions and set interest rates. The FOMC is composed of twelve officials: the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who rotate annually.

In periods of severe financial stress or very low inflation, the Fed may employ Quantitative Easing (QE). Under QE, the central bank sharply increases the flow of credit in an impaired financial system by creating additional US Dollars and purchasing high-grade bonds from financial institutions. This approach, used during the Great Financial Crisis in 2008, generally exerts downward pressure on the US Dollar.

The opposite approach, Quantitative Tightening (QT), involves the Fed halting asset purchases and allowing its bond holdings to mature without reinvesting the principal. QT is typically regarded as supportive for the US Dollar, as it effectively reduces liquidity relative to QE.