Gold tumbles to a one-year low near $3,850 as Fed hawks gain the upper hand

• Gold slumps to $3,874, having set a new yearly low at $3,852.
• Calls for further tightening from Fed officials lift the US Dollar towards 19-month highs.
• An 87% probability is priced in for a December Fed 25 bps rate increase ahead of US PPI.

Increased market pricing for a 50 bps December interest rate rise by the Federal Reserve (Fed) sends Gold (XAU/USD) down nearly 2.8% on Thursday. Having reached a yearly low of $3,852, XAU/USD is trading at $3,874.

Hawkish Fed comments coincide with rising oil prices

A more hawkish stance among Fed officials continues to support the US Dollar, keeping bullion under pressure.

Although the Cleveland Fed's Beth Hammack favours a gradual pace of interest rate increases, she said the inflation outlook is deteriorating. Inflation has been “well above target,” according to the Chicago Fed's Austan Goolsbee. Meanwhile, the San Francisco Fed's Mary Daly acknowledged the need for additional tightening, noting that inflation pressure “is up, not down.”

An increase of 200K in Initial Jobless Claims for the week ending 7 November exceeded both the 195K forecast and the previous reading of 191K, leaving US employment data slightly weaker than expected. Nevertheless, the labour market remains robust: Continuing Jobless Claims fell to 1.697 million from 1.717 million.

Separately, Existing Home Sales recorded a -5.5% change from September’s reading, falling to 3.75 million from 3.97 million.

Near 19-month highs, the US Dollar Index (DXY) has gained 0.34% to 103.48. The index measures the US currency against a basket of six currencies.

Meanwhile, a social media post by US President Donald Trump stated that the US does not need an agreement with Iran, keeping open the possibility of further strikes. That contradicted his comments two days earlier that new strikes were unnecessary.

A 2.7% rise took West Texas Intermediate (WTI), the US crude oil benchmark, to $88.79 per barrel. The increase fuelled speculation about higher petrol prices and increased the likelihood of a Federal Reserve rate rise.

According to the CME FedWatch Tool, money markets had assigned an 85% probability to a 25-basis-point increase in December, with a smaller 15% probability of a 50-basis-point rise. Only a week earlier, markets had priced in zero chance of a 50 bps increase.

Friday brings the next US economic release in focus: October’s Producer Price Index (PPI) figures.

XAU/USD technical outlook: Gold drops more than 2.5% below $3,900

Following its fall to a year-to-date (YTD) low of $3,852, Gold has regained some ground, although it remains below $3,900. Both price action and momentum, gauged by the Relative Strength Index (RSI), point to further losses.

At $3,852 lies the initial support for XAU/USD, with $3,800 next if that level gives way. Key psychological levels follow, though the next area of interest is $3,500, the swing high from 22 April 2025 that has since become support.

On the upside, $3,900 provides the first major resistance, before the session high of $4,000. Further gains would bring $4,100 into view, followed by the confluence of the 50-day Simple Moving Average (SMA) at $4,165 and the 100-day SMA at $4,199.