Gold (XAU/USD) touches a one-week low during the Asian session on Thursday, though it lacks follow-through as traders await a crucial meeting between US President Donald Trump and his Chinese counterpart Xi Jinping. Expectations for a major announcement are low, though market players will look for any progress on rare earths or technology restrictions, and an extension of the current US-China truce. Nevertheless, the incoming headlines could infuse some volatility and provide some impetus to the precious metal.
Any intraday move up, however, is likely to remain capped amid rising US Federal Reserve (Fed) rate hike bets, which tend to undermine the non-yielding Gold. According to CME Group’s FedWatch Tool, traders are now pricing in a nearly 70% chance that the US central bank will raise borrowing costs again in October. The expectations were lifted by a private survey, which showed that US business activity accelerated for a fourth straight month in September. In fact, the S&P Global flash Composite PMI Output Index rose from 56.0 in August to 58.4, the highest level since July 2021.
Meanwhile, tensions between the US and Iran took center stage at the United Nations General Assembly (UNGA) after Trump stated that Iran faces a choice of diplomacy or total destruction. In response, Iran’s President Masoud Pezeshkian said that Iran will never bend the knee, but is ready for a diplomatic solution. Pezeshkian also insisted that any deal would have to include an end to the US blockade, targeting Iranian ports and maritime shipping in and around the Strait of Hormuz. This led to a 3% rally in crude oil prices, reigniting inflation fears and underpinning prospects for further Fed tightening.
The growing acceptance that the US central bank will stick to its hawkish stance pushed the yield on the benchmark 10-year US Treasury bond to its highest level since July 2007 and lifted the US Dollar (USD) to a nearly two-month high. This, in turn, backs the case for a further near-term depreciating move for gold, though the subdued price action warrants some caution for aggressive bearish traders. Hence, weakness below the monthly swing low, around the $4,235 area, touched last Wednesday, is needed to reaffirm the negative outlook and pave the way for deeper losses.
XAU/USD daily chart
Technical Analysis
The XAU/USD pair maintains a capped tone below the 100-day Exponential Moving Average (EMA) and the 50% retracement level. Meanwhile, a negative Moving Average Convergence Divergence (MACD) reading and a mid-range Relative Strength Index (RSI) around 44.6 hint that bullish momentum has faded. Hence, any attempted recovery move is likely to be sold into while the Gold price remains under the clustered resistance.
On the downside, the 61.8% Fibonacci retracement at $4,227 offers nearby structural support, ahead of the 78.6% level at $4,101 and the prior swing floor at $3,940. On the topside, immediate resistance aligns at the 50% retracement at $4,316, followed by the 100-day EMA at $4,359 and the 38.2% retracement at $4,405. A sustained break above this cluster would be needed to ease the bearish bias and open the way toward $4,515 and $4,693.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed 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 serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.