Gold declines to one-week low, below $4,100 on Fed hike bets as bulls shrug off weak USD

Today Markets

0 Comment

Markets
  • Gold attracts fresh sellers on Thursday amid firming expectations for a December Fed rate hike.
  • Falling US bond yields keep USD depressed, though it fails to lend any support to the commodity.
  • Geopolitical risks favor USD bulls, backing the case for further depreciation for the XAU/USD pair.

Gold (XAU/USD) comes under some renewed selling pressure on Thursday and drops to a fresh one-week low during the Asian session, with bears now looking to extend the downward trajectory further below the $4,100 mark.

The latest US inflation figures, released last week, reaffirmed market bets for an imminent interest rate hike by the Federal Reserve (Fed). In fact, the CME Group’s FedWatch Tool indicates that traders are pricing in around a 90% chance that the US central bank will raise borrowing costs in December. Furthermore, inflation fears stemming from volatile oil prices underpin prospects for further policy tightening by the Fed, which, in turn, is seen as a key factor driving flows away from the non-yielding Gold.

The US Dollar (USD), however, struggles to attract any meaningful buyers and remains close to a three-week low, touched on Tuesday, as Fed officials recently signaled that there is no urgency to raise interest rates at the upcoming October 27–28 meeting. Furthermore, US bond yields extend their retracement slide from multi-year highs and keep USD bulls on the back foot. That said, the risk of a further escalation of tensions in the Middle East might continue to lend some support to the safe-haven Greenback.

In the latest developments surrounding the Middle East crisis, Iran’s Foreign Minister, Abbas Araghchi, stated that the country is prepared for diplomacy while also emphasizing its readiness to defend itself. Araghchi added that there was little reason to expect progress now as the US had shown no willingness to reach an understanding. Separately, The New York Times reported that the US and Israel have drawn up plans for a short but intense military campaign against Iran after the US midterm elections.

This keeps the geopolitical risk premium in play and favors USD bulls, suggesting that the path of least resistance for gold remains to the downside. However, it would still be prudent to wait for a follow-through sell-off before confirming a breakdown through a trading range and positioning for further losses. Traders now look to Thursday’s release of the US Weekly Initial Jobless Claims data for some impetus ahead of the global flash PMIs on Friday, though the focus remains on the FOMC meeting next week.

XAU/USD 4-hour chart

Chart Analysis XAU/USD

Technical Analysis

The XAU/USD pair is keeping a bearish near-term tone below the 200-period Simple Moving Average (SMA) on the 4-hour chart. Moreover, the Moving Average Convergence Divergence (MACD) indicator remains in negative territory with the line below its signal, while the Relative Strength Index (RSI) hovers in the mid-30s. Momentum indicators together suggest persistent downside pressure even as conditions approach oversold territory.

Any further decline, however, could find some support near the $4,075-$4,065 region, or the monthly swing low. Some follow-through selling will be seen as a fresh trigger for bearish traders and make the Gold price vulnerable to accelerating the fall further towards the $4,030-$4,025 intermediate support en route to the $4,000 psychological mark.

On the flip side, the $4,140 area could act as an immediate hurdle, above which the precious metal could make a fresh attempt to conquer the $4,200 mark. A sustained strength beyond the said handle could lift the Gold price to the 200-period SMA at $4,232, which, if cleared, would ease the current bearish pressure and open the door to a more meaningful corrective bounce.

Tags: