Gold drifts lower as Fed rate hike bets and Middle East tensions boost USD

• Gold meets with fresh supply on Thursday amid the emergence of some USD dip-buying.
• Hawkish Fed expectations and geopolitical risks revive demand for the safe-haven buck.
• Traders now look to the US Q3 GDP report and the crucial PCE Price Index for some impetus.

Gold (XAU/USD) comes under some renewed selling pressure on Thursday, sliding back below $4,050 during the Asian session and snapping a three-day winning streak to the weekly top, touched the previous day. The US Dollar (USD) regains positive traction following Wednesday’s post-FOMC corrective slide from a two-week high and turns out to be a key factor weighing on the precious metal.

In a widely expected move, the US Federal Reserve (Fed) held interest rates steady at the end of the October policy meeting in a 10-2 vote, with Governor Lisa Cook and Cleveland Fed President Beth Hammack preferring a quarter-point hike. Meanwhile, Fed Chair Kevin Warsh signaled during the post-meeting press conference that the central bank remains vigilant against persistent inflation and geopolitical risks. This comes on top of concerns about energy-driven price pressures and underpins prospects for further tightening by the Fed. According to the CME Group’s FedWatch Tool, traders are currently assigning around an 80% chance that the US central bank will raise borrowing costs at its December policy meeting. The hawkish outlook, in turn, revives USD demand and contributes to driving flows away from the non-yielding Gold.

Adding to this, fears of a further escalation of tensions in the Middle East underpin the safe-haven Greenback. In fact, The Wall Street Journal reported on Tuesday that US officials have told several Gulf Arab countries to prepare for a short and intense military campaign against Iran after the November 3 midterm elections. On the other hand, Iranian Foreign Minister Abbas Araghchi said armed forces stand ready to defend the country even as Tehran will keep in close contact with intermediaries to give diplomacy a chance. Meanwhile, regional mediators led by Qatar are working to restart negotiations between the US and Iran to prevent the resumption of the war. Separately, US Vice President JD Vance reportedly sent a letter to Mohsen Rezaei, secretary of Iran’s Supreme National Security Council, in an effort to revive peace negotiations.

Nevertheless, the geopolitical risks remain in play as furious fighting between the Iran-backed Houthi group and the Saudi Arabia-backed government in Yemen continues. In the latest developments, the Houthis on Tuesday said they had targeted Saudi Arabia’s Ras Tanura ‌oil refinery – the biggest in the kingdom – with a ballistic missile. Furthermore, attacks on pumping stations along Saudi Arabia’s East-West oil pipeline earlier this week stoked supply disruption fears and supported crude oil prices. This, in turn, favors USD bulls and suggests that the path of least resistance for the Gold price remains to the downside. Traders, however, might refrain from placing aggressive bets and opt to wait for the release of crucial US macro data – the Advance Q3 GDP report and the Personal Consumption Expenditures (PCE) Price Index.

XAU/USD 4-hour chart

Technical Analysis

The XAU/USD pair has been trending lower over the past month or so along a downward-sloping channel and keeps a bearish near-term tone below the 100-period Exponential Moving Average (EMA) on the 4-hour chart. Meanwhile, the Moving Average Convergence Divergence (MACD) has turned positive and the Relative Strength Index (RSI) hovers near a neutral region, around 47.5. Improving momentum indicators, however, only hint at a corrective bounce within a broader downside bias defined by the descending channel.

Hence, any attempted recovery is more likely to confront initial resistance near the 100-period EMA at $4,105, followed by a stronger barrier at the channel top around $4,125, where selling pressure could re-emerge. On the downside, the $4,000 psychological mark could act as the next notable support ahead of the lower boundary of the descending parallel channel, around $3,946. A decisive break beneath this floor would reinforce the prevailing bearish structure and open the door to deeper losses in the coming sessions.

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