• Gold struggles to capitalize on its modest intraday move up beyond the $4,300 mark.
• The USD preserves a bullish tone amid the Fed’s hawkish outlook, capping bullion.
• Elevated US bond yields and geopolitical risks further underpin the safe-haven buck.

Gold (XAU/USD) sticks to its modest recovery gains through the Asian session on Thursday, though it lacks bullish conviction and trades below the $4,300 mark. The US Dollar (USD) touches a fresh high since late July amid the Federal Reserve's (Fed) hawkish outlook. Moreover, escalating Middle East tensions support the safe-haven Greenback, which, in turn, keeps the bullion near a six-week low, touched the previous day.

The US central bank voted unanimously to raise interest rates for the first time since 2023 at the conclusion of the September policy meeting on Wednesday. The decision was in line with the broader consensus and was accompanied by a more hawkish outlook. In fact, the so-called dot plot revealed that Fed officials expect one more interest rate increase this year. At the post-meeting press conference, Fed Chair Kevin Warsh said that the decision was led by a strengthening US economy, a lack of improvement in summer inflation trends, and geopolitics.

Warsh added that inflation is too high and has been for too long, while underscoring the importance of stabilizing consumer prices to grow the US economy. Furthermore, inflation risks stemming from persistently high energy prices underpin prospects for further tightening by the Fed and remain supportive of elevated US bond yields. In fact, the yield on the benchmark 10-year US Treasury hovers near the 5.0% psychological mark and close to its highest level since April 2007. This, along with escalating tensions in the Middle East, underpins the safe-haven USD.

In the latest developments, Iran-backed Houthi rebels said that Saudi aircraft have carried out more than 450 air strikes across Yemen in the past week and claimed that they shot down a Saudi F-15 fighter jet over Marib province. Meanwhile, US President Donald Trump claimed that Iran wants to strike a deal and that the war may be nearing its end. Nevertheless, intensifying fighting between the Houthi group and Saudi Arabia keeps the geopolitical risk premium in play, supporting oil prices and the Greenback. This warrants caution for XAU/USD bulls.

XAU/USD daily chart

Technical Analysis

The precious metal maintains a bearish near-term bias below the $4,315-$4,320 confluence – comprising the 50% retracement of the June-August upswing and the 100-day Simple Moving Average (SMA). The said area should act as a key pivotal point, above which the XAU/USD pair could climb to the 38.2% level near $4,404 and the 23.6% retracement at $4,513 en route to the broader cycle high zone at $4,690.

On the downside, immediate support is seen at the 61.8% Fibonacci retracement at $4,226, followed by the deeper 78.6% level at $4,100 and the structural floor around the prior swing low near $3,940.20. Meanwhile, the Moving Average Convergence Divergence (MACD) indicator stays in negative territory with the line below its signal line and a contracting bearish histogram. The Relative Strength Index (RSI) hovers around 44, hinting at waning downside momentum but not yet challenging the prevailing corrective tone.

(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.

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.