- Gold drifts lower as Fed hike bets and rebounding US bond yields lend some support to the USD.
- Hope for Iran diplomacy caps the USD as traders remain on the sidelines ahead of the US elections.
- Tuesday’s release of the US JOLTS Job Openings could also provide some impetus to the bullion.
Gold (XAU/USD) weakens further below $3,950 during the Asian session on Tuesday, reversing part of the previous day's recovery from a one-year low set last week. Data released on Monday showed that US manufacturing sector business activity expanded for the 10th straight month in October. The Institute for Supply Management's (ISM) Manufacturing PMI came in higher than consensus estimates and rose to 55.5 in October from 54.5 in the previous month. This reaffirms hawkish US Federal Reserve (Fed) expectations, which, along with rebounding US bond yields, prompt fresh selling around the non-yielding yellow metal.
The US Dollar (USD), however, struggles to lure buyers as traders are demonstrating a widespread hesitancy ahead of US midterm elections that will decide control of Congress. Prediction markets strongly favor Democrats winning control of both the House of Representatives and the Senate. Meanwhile, a Republican sweep would be a larger market surprise, which could lift US Treasury yields and the US Dollar (USD). Moreover, hopes for a potential diplomatic resolution to end the US-Iran war might further hold back USD bulls from placing aggressive bets. In fact, US President Donald Trump said on Monday that Iran wants to make a deal to end the war and that such an agreement could happen. Moreover, Iranian Foreign Minister Abbas Araqchi said that consultations through mediators were very intensive.
However, several days of negotiations between Iranian officials and Qatari mediators failed to make a breakthrough despite Tehran's revised proposals to reopen the strategic Strait of Hormuz for two days, provided that the US fulfills a set of conditions. Moreover, a fresh escalation of tensions between Russia and Ukraine keeps the geopolitical risk premium firmly in play. This should act as a tailwind for the USD, suggesting that the path of least resistance for gold remains to the downside. On the economic data front, traders will take cues from the release of US JOLTS Job Openings data for some impetus later during the North American session. The focus, however, will remain on the key US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report, due on Friday.
XAU/USD 4-hour chart
Technical Analysis
The XAU/USD pair maintains a bearish near-term bias beneath the 100-period Exponential Moving Average (EMA) on the 4-hour chart. Adding to this, the overnight failure near the late October swing low and the subsequent slide validates the negative outlook despite a mildly positive Moving Average Convergence Divergence (MACD). Meanwhile, the Relative Strength Index (RSI) near 40.0 hints at only tentative recovery from recently oversold conditions.
Bearish traders, however, would now look to Friday's swing low, around the $3,870 area for potential demand zones, which, if broken, should pave the way for an extension of the well-established downward trajectory. On the topside, immediate resistance is defined by the 100-period EMA at $4,053. A sustained break above this level would be needed to ease downside pressure and open the way for a more constructive recovery phase.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.