Gold bulls seem hesitant below $4,200 as hawkish Fed offset USD weakness

• Gold reverses an intraday dip to $4,150 amid a modest USD pullback from an 18-month high.
• A hawkish Fed and geopolitical uncertainties could limit USD losses, capping the precious metal.
• Traders might opt to wait for the latest US inflation figures and Fed Chair Warsh’s speech.

Gold (XAU/USD) retains a mildly positive bias through the first half of the European session, though it remains capped below the $4,200 mark and the top boundary of a two-week-old trading range. The US Dollar (USD) retreats from its highest level since April 2025 amid some profit-taking, offering support to the precious metal. However, the US Federal Reserve’s (Fed) hawkish stance and escalating Middle East conflicts could limit deeper losses for the safe-haven buck, keeping a lid on the commodity and warranting some caution for aggressive bulls.

The minutes from the Federal Open Market Committee (FOMC) September 15-16 meeting, released last Wednesday, showed that participants emphasized another quarter-point rate increase could be appropriate before the end of 2026 as inflation remains elevated above the 2% target. Adding to this, Cleveland Fed President Beth Hammack’s hawkish comments on Monday reaffirmed market bets that the US central bank will raise borrowing costs by the year-end. Moreover, energy-driven inflation risks underpin prospects for further Fed tightening and keep US bond yields elevated near multi-year highs.

Hammack leans hawkish as inflation mindset fears bolster Dollar

Fed’s Hammack delivered a notably more hawkish tone, with the 8.4/10 FXS Speechtracker score standing well above the 7.5/10 historical average, underscoring a stronger-than-usual bias toward tighter policy. The emphasis on the need for higher interest rates, a restrictive stance to push inflation back to 2%, and concerns that an inflationary mindset is becoming ingrained—amid neutral financial conditions and broad, demand-driven price pressures including from AI—signals a preference for relatively quick, smaller rate moves that keep the policy path firmly skewed toward further tightening, a backdrop typically supportive for the Dollar. Hammack’s focus on clarifying the Fed’s reaction function and warning that firms are planning price hikes beyond cost increases reinforces the message that the current trend inflation in the mid-to-high 2% range is still inconsistent with the target, warranting sustained hawkish vigilance.

The FXS Fed Sentiment Index rose by 0.59 points to 138.92, cementing the Fed’s stance deep in hawkish territory and aligning with the elevated FXS Speechtracker score. This upward move well above the neutral 100 mark confirms that recent Fed communication, exemplified by Hammack’s speech, is skewing more decisively toward tighter policy expectations, a configuration that tends to underpin the Dollar against peers.

Meanwhile, the Iran-backed Houthi group in Yemen escalated its campaign against Saudi Arabia and fired more missiles on Monday. This follows deadly strikes on Riyadh’s King Khalid International Airport over the weekend, which drew a Saudi vow of retaliation. Moreover, US President Donald Trump raised the possibility of joining strikes on the Houthi group and resuming attacks on Iran. This keeps the geopolitical risk premium in play, which backs the case for the emergence of some dip-buying around the safe-haven Greenback and should keep a lid on any meaningful upside for the Gold.

Traders might also opt to wait for more cues about the Fed’s future policy path before placing fresh directional bets. Hence, the focus will remain glued to the release of the latest US inflation figures – Consumer Price Index (CPI) and Producer Price Index (PPI) on Wednesday and Thursday, respectively. Apart from this, Fed Chair Kevin Warsh’s speech at the annual meetings of the IMF and World Bank in Bangkok on Friday would drive the USD and the non-yielding Gold. Nevertheless, the fundamental backdrop suggests that the subsequent move up is more likely to be sold into and remain capped.

US CPI seen as key driver for Fed rate expectations

Analysts at Societe Generale highlight that “the week’s main non-geopolitical event comes on Wednesday with the release of US CPI,” which they see as pivotal for near-term Fed pricing. They argue that “if we see a pickup in core inflation to 2.5% (the market consensus), there will be little chance of any shift in market expectations: no rate hike this month, but a very strong chance of one in December and another in Q1.”

XAU/USD 4-hour chart

Technical Analysis

The XAU/USD pair remains confined in a two-week-old range, marking a bearish consolidation against the backdrop of a decline from the August monthly swing high. Moreover, the precious metal remains capped below the 100-period Simple Moving Average (SMA) on the 4-hour chart, which validates the near-term negative bias. Moreover, the Moving Average Convergence Divergence (MACD) indicator sits marginally in negative territory, hinting at fading upside momentum. Meanwhile, the Relative Strength Index (RSI) near 55 suggests a constructive but modestly cooling bullish tone as the Gold price consolidates beneath the key barrier.

Hence, any subsequent move up might confront initial resistance near the 100-period SMA at $4,204. This is followed by the top boundary of the trading range, around $4,218, with the 61.8% Fibo. retracement at $4,241 forming the next hurdle before a broader supply cluster emerges between the 50.0% retracement at $4,328 and the 38.2% level at $4,415, ahead of the 23.6% retracement at $4,523 and the cycle peak near $4,697. On the downside, immediate support aligns at the 78.6% retracement at $4,117, and a convincing break below would be seen as a fresh trigger for bearish traders, exposing the structural floor around the prior swing low at $3,959.

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