Gold prices struggled to extend early gains at the start of the week, with XAU/USD trading around $4,170 after reaching an intraday high of $4,190, according to FXStreet, whose analysis was republished by Mitrade. The US Dollar and US Treasury yields regained some ground following last week's pullback, as traders assessed the Federal Reserve's interest rate path and geopolitical developments. The US Dollar and yields had corrected sharply lower last week, driven by an AI-led equity sell-off that prompted traders to rotate into government bonds and safe-haven gold.
The metal's gains were modest, however, as expectations of additional Fed rate hikes continued to weigh on the non-yielding metal while cushioning the downside in the dollar and Treasury yields. The US Dollar Index (DXY) traded around 101.90, up 0.10% on the day, supported by weakness in the euro amid mounting fiscal concerns and political unrest in France. The benchmark 10-year US Treasury yield stood near 5.08%, holding close to recent lows.
Inflation remains a central concern. According to FXStreet, elevated energy prices linked to the war in the Middle East continue to feed into inflation, and both September's Consumer Price Index (CPI) and Producer Price Index (PPI) reports came in hotter than expected. This reinforces expectations of another rate hike by year-end as the Fed seeks to bring inflation back to its 2% target.
Nordea analysts said they are leaving their Federal Reserve outlook unchanged and still expect one more hike this year and another next year, with risks tilted to the upside. This is the bank's own forecast, not a position of FXStreet or Mitrade. Nordea argued that monetary policy still does not look restrictive enough for the current economy, and that long-term yields above 5% are not particularly restrictive.
Fed officials have recently signalled they remain open to further tightening, although they have not strongly signalled a hike at the October 27-28 meeting. Speaking in Bangkok on Friday, Fed Chair Kevin Warsh reiterated his stance of avoiding forward guidance, saying, “I don't prejudge meetings.” The CME FedWatch Tool shows traders pricing in a 15% chance of a rate hike this month and an 89% chance of a hike in December. On the geopolitical front, Iran has renewed its offer to reopen the Strait of Hormuz within seven days if Washington accepts its conditions, although negotiations remain stalled over Tehran's nuclear programme.
Continued attacks on vessels in the Strait of Hormuz and fighting between Saudi Arabia and the Houthis keep supply risks elevated. US President Donald Trump's decision to temporarily waive sanctions on Russia has, however, raised expectations of increased energy supplies. From a technical perspective, FXStreet describes a mildly bearish near-term bias for XAU/USD, with price sitting just under the 20-day simple moving average (SMA) at $4,183, which also forms the middle Bollinger Band.
The Moving Average Convergence Divergence (MACD) indicator has turned positive, suggesting only tentative upside momentum, while the Relative Strength Index (RSI) near 45 and an Average Directional Index (ADX) below 20 point to a soft tone and a weak underlying trend. The $4,183 level is cited as immediate resistance, with a daily close above it needed to ease downside pressure. Initial support is seen at the lower Bollinger Band near $4,053.
FXStreet notes that the technical analysis was written with the help of an AI tool. As background, FXStreet notes that central banks are the largest holders of gold and that they added 1,136 tonnes of gold, worth around $70 billion, to their reserves in 2022, according to World Gold Council data cited in the same report. The publication also states that gold is typically sensitive to US Dollar movements, as it is priced in dollars, and that higher interest rates tend to weigh on the non-yielding metal.
Source: FXStreet, via Mitrade Insights (mitrade.com). The information is provided for general information purposes only, and past performance is not indicative of future results.
Source: mitrade.com