Gold drops below $4,000 with traders assessing a half-point rate rise by the Fed

• With hawkish Fed expectations still setting the tone for markets, Gold finds little buying interest.
• Higher US inflation, alongside hawkish comments from the Fed, prompts markets to price in a December rate rise in full.
• Below the 20-day SMA, XAU/USD retains a bearish outlook, with an RSI reading near 41 signalling subdued buying momentum.

The $4,000 level gives way again on Thursday as Gold (XAU/USD) surrenders most of last week’s advance. Expectations of more aggressive interest rate increases by the Federal Reserve (Fed) have driven the US Dollar (USD) to a new year-to-date high. A subsequent retreat in the Greenback has helped Gold rebound from its intraday trough of $3,924. XAU/USD stands at around $3,952 at the time of writing, a daily decline of 0.82%.

Having reached 103.08, the US Dollar Index (DXY) has eased to around 102.88. The index measures the Greenback against a basket of six major currencies.

Ahead of Tuesday’s US inflation release, Fed Governor Christopher Waller had raised the possibility of a 50-basis-point (bps) increase in December. A half-point rise might be necessary, he said, if October’s core Consumer Price Index (CPI) registered “around 0.3% or higher.” The report met that condition: monthly core CPI increased by 0.3%, exceeding the 0.2% forecast, while headline CPI climbed 0.4% against an estimate of 0.3%.

Dollar gains momentum as December Fed rate rise becomes fully priced in

According to MUFG/BTMU analysts, "there are currently around 28bps of hikes priced by December, and 43bps of hikes priced by the following meeting in January," a profile which, they say, "indicat[es] that even if the Fed hikes by 25bps in December, it is now expected to quickly follow up with another 25bps hike at the start of next year."

With DXY now "back at Liberation Day (April 2025) levels.", ING strategists observe that "the combination of hawkish Fedspeak and a US CPI beat earlier this week continues to pay dividends for the Dollar,". In their assessment, "real front-end rate differentials [are] continuing to fuel strong Dollar momentum"; they also emphasise that "this remains a rates-driven move, with contained excessive USD strength relative to short-term fair value currently built in."

As investors favour interest-bearing assets, the prospect of increased borrowing costs reduces Gold’s appeal. Attention now shifts to the next US economic releases: weekly jobless claims later on Thursday, followed by the Producer Price Index (PPI) on Friday. Several Fed officials are also scheduled to speak during the remainder of the week.

Alongside the economic outlook, markets are monitoring relations between the US and Iran. According to The Wall Street Journal (WSJ), US Vice President JD Vance is considering face-to-face discussions with senior Iranian security official Mohsen Rezaei. Talks remain at a preliminary stage, with no date agreed. Any indication of progress towards a deal could maintain downward pressure on Oil prices. Should that decline persist, inflationary pressures could ease, encouraging traders to scale back expectations of more aggressive Fed rate increases.

Technical analysis: Gold retains a bearish bias

Trading below the Bollinger Bands’ 20-day Simple Moving Average (SMA) at $4,042 leaves XAU/USD with a bearish daily chart. The 14-day Relative Strength Index (RSI), at around 41, indicates limited buying interest and relatively muted momentum. That remains the case despite a slightly positive Moving Average Convergence Divergence (MACD) reading above zero.

Any recovery first faces resistance at $4,000 and then at the middle Bollinger band, the 20-day SMA at $4,042. Holding above both levels would clear a path towards $4,150, followed by the upper Bollinger band at approximately $4,199. Conversely, the lower Bollinger band around $3,885 provides immediate support. A decisive break beneath that area would be likely to strengthen the existing bearish bias and bring deeper retracement levels into view.

(The technical analysis of this story was written with the help of an AI tool. Know more.)