- Gold gains some follow-through traction as sliding US bond yields prompt some USD profit-taking.
- Geopolitical uncertainties and the hawkish Fed should limit deeper USD losses and cap bullion gains.
- The recent range-bound price action further warrants some caution for aggressive bullish traders.
Gold (XAU/USD) gains positive traction for the second straight day on Friday, extending this week's recovery from a two-month low. The US Dollar (USD) retreats further from April 2025 highs amid softer US bond yields, lifting the commodity to a fresh weekly top around the $4,200 neighborhood during the Asian session. That said, persistent risks and the US Federal Reserve's (Fed) hawkish stance could limit deeper USD losses and cap the commodity.
President Donald Trump said on Thursday that the US would refrain from resuming military strikes on Iran before the November 3 midterm elections and added that the US was engaged in productive discussions with Iran. This kept a lid on crude oil prices, which helped ease concerns about runaway inflation. Adding to this, a well-received 30-year bond auction triggered a corrective decline in US bond yields, prompting USD bulls to take some profits off the table. This, in turn, is seen as a key factor offering some support to the Gold price.
Meanwhile, investors remain worried about inflation risks stemming from volatile energy prices amid the US-Iran standoff over Tehran's nuclear program, escalating Middle East conflicts and disruptions around the Strait of Hormuz. US Vice President JD Vance said that Iran must make a meaningful reduction in its nuclear enrichment capacity to satisfy US demands and end the seven-month-old war. Iran’s Atomic Energy Chief Mohammad Eslami, however, rejected US demands to abandon Uranium enrichment or give up its stockpiles.
Adding to this, intensifying fighting between the Iran-aligned Houthis in Yemen and the Saudi-led military coalition keeps the geopolitical risk premium in play. Moreover, traders are still pricing in over an 80% chance that the US central bank will raise borrowing costs by the end of this year, which backs the case for the emergence of some USD dip-buying. This might cap gains for the non-yielding Gold as traders now look to the preliminary University of Michigan US Consumer Sentiment and Inflation Expectations Index for a fresh impetus.
UOB sees Fed tightening path extending into early 2027 with inflation risks still in focus
Analysts at UOB Group reiterate that, “we expect two additional hikes, in Dec 2026 and 1Q 2027, thereafter on hold for rest of 2027 as inflation fades in a more durable fashion in the later part of 2027 as the most likely course.” At the same time, they caution that they “continue to keep in mind the risks of further policy tightening if the inflation trajectory becomes more persistent by the combination of higher energy prices, trade tariffs and AI-related factors.” In terms of near-term dynamics, UOB has “ruled out a back-to-back rate hike in the October FOMC, which falls less than a week from the midterm elections (3 Nov),” underscoring their view that the committee is unlikely to move again so close to the political calendar.
XAU/USD 4-hour chart
Technical Analysis
The XAU/USD pair remains confined in a familiar range held over the past two weeks or so and has been showing some resilience below the 78.6% Fibonacci retracement level of the June-August upswing. Meanwhile, the Moving Average Convergence Divergence (MACD) advances with its latest reading at 5.33, while the Relative Strength Index (14) rises toward 59, together hinting at improving momentum that has yet to overcome the overhead structural barriers. Hence, the top boundary of the short-term trading range, around the $4,200 mark, might continue to act as an immediate strong hurdle.
This is followed by the 100-period Simple Moving Average (SMA) on the 4-hour chart, at $4,227, and the 61.8% Fibo. retracement level at $4,231. A sustained break above this cluster would open the way toward the 50.0% retracement at $4,320 and then the 38.2% level at $4,409, with the 23.6% retracement at $4,519 acting as a more distant cap. On the downside, initial support is located at the 78.6% Fibo. retracement at $4,104, where buyers are expected to show up on a pullback, while the broader bias remains constrained by the dense resistance overhead.
(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.