• Gold catches fresh bids as retreating US bond yields drag the USD away from an 18-month top.
• Energy-driven inflation risks keep Fed rate hike bets in play, warranting caution for USD bears.
• Geopolitical uncertainties could further support the safe-haven buck ahead of the US PPI report.

Gold (XAU/USD) maintains its intraday bullish tone through the first half of the European session on Thursday, looking to build on the momentum further beyond $4,150 amid a broadly weaker US Dollar (USD). The initial aggressive market reaction to hot US consumer inflation figures faded quickly amid expectations that the Federal Reserve (Fed) may not rush to raise interest rates immediately. This led to a further steep fall in US bond yields, prompting some follow-through USD profit-taking and assisting the non-yielding bullion to snap a three-day losing streak to a one-week low set on Wednesday.

The US Bureau of Labor Statistics (BLS) reported on Wednesday that the headline Consumer Price Index (CPI) accelerated from 3.4% to 3.7% over the 12 months through September, surpassing consensus estimates. Adding to this, the core gauge, which excludes food and energy costs, increased by 2.6% last month, up from 2.4% in August. The data pointed to broadening price pressures, forcing investors to reassess the Fed's policy path. However, San Francisco Fed President Mary Daly said the central bank will probably need to raise interest rates further, though she signalled that there is no need to do so at the October meeting.

Daly leans hawkish but urges patience as markets digest CPI

The FXS Speechtracker score of 6.8/10 marks a modest hawkish tilt relative to the historical average of 6.1/10, underscoring a stance that keeps further rate hikes firmly on the table. Daly’s emphasis that gas-driven headline CPI is rising while core inflation remains stubborn, combined with the view that more tightening is likely but should not be rushed, signals a preference for data-dependent patience rather than immediate action. The focus on persistent above-target inflation risks, a steady labor market, and the reassurance that markets now better understand the Fed’s reaction function reinforces a carefully hawkish tone anchored in clear communication and accountability.

The FXS Fed Sentiment Index slipped by 0.84 points to 128.17, indicating a slight pullback in hawkish intensity even as the index remains firmly above the neutral 100 mark. This configuration suggests that while the Fed tone is still clearly hawkish, the incremental shift reflects a more measured, deliberate approach to future policy moves rather than an escalation in Dollar-supportive rhetoric.

Nevertheless, market participants are still pricing in over an 85% chance that the US central bank will raise borrowing costs again by the end of this year. Moreover, inflation risks stemming from volatile energy prices underpin prospects for further policy tightening by the Fed. Adding to this, escalating tensions in the Middle East could limit the ongoing USD corrective decline from its highest level since April 2025. In the latest developments, a container ship sank in the Strait of Hormuz on Wednesday following a projectile attack, while the Iran-backed Houthi group continued launching drone and missile strikes across Saudi Arabia.

Moreover, the Houthis vowed to continue targeting Saudi Arabia's international airport and oil infrastructure in the coming days in response to Saudi Arabia's aggression against Yemen's capital, Sanaa. Separately, Russia accused Ukraine of launching strikes against two oil refineries, which it claims violated an energy ceasefire recently brokered by US President Donald Trump. This keeps the geopolitical risk premium in play, which might continue to act as a tailwind for the safe-haven buck and hold back bulls from placing aggressive bets on gold. The focus now shifts to the US Producer Price Index (PPI), due for release later today.

Apart from this, Fed Chair Kevin Warsh's speech at the annual meetings of the IMF and World Bank in Bangkok on Friday will be looked upon for more cues about the future policy path. The outlook, in turn, will play a key role in driving the USD and provide some meaningful impetus to the yellow metal. In the meantime, the aforementioned fundamental backdrop and the recent repeated failures to sustain a move above $4,200 make it prudent to wait for some follow-through buying before confirming that the Gold price has formed a near-term bottom around the $4,075-$4,065 region.

XAU/USD 4-hour chart

Technical Analysis

From a technical perspective, the XAU/USD pair keeps a capped tone below the 100-period Simple Moving Average (SMA) on the 4-hour chart. Furthermore, the Moving Average Convergence Divergence (MACD) is negative and below its signal line, with a contracting histogram, which suggests lingering downside pressure despite some stabilization in the Relative Strength Index (RSI) around the neutral 50 area.

Hence, any subsequent move up beyond the 100-period SMA near $4,180 might confront some resistance near the $4,215-$4,220 horizontal zone. A sustained break above this barrier would be needed to ease the current bearish bias and open the way to higher levels. On the flip side, the $4,100 mark could protect the immediate downside ahead of the $4,075-$4,065 region, which, if broken, will reaffirm the negative bias.

(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.