Gold faces pressure near $4,050 as expectations of Fed rate hikes strengthen

• Expectations of further Fed rate rises dampen sentiment, leaving Gold steady but struggling to gain traction.
• A December Fed rate increase is fully priced in, while markets also consider the prospect of a larger 50 bps rise.
• Below its 21-day SMA, XAU/USD remains under pressure, with the short-term technical bias still pointing lower.

Stronger-than-forecast US consumer inflation and hawkish comments from Federal Reserve (Fed) officials have reinforced expectations of a more aggressive path of interest rate increases. Against that backdrop, Gold (XAU/USD) is holding steady on Wednesday following the previous day’s 2.67% fall. XAU/USD stands at around $4,050 at the time of writing, a gain of 0.47% on the day.

October’s US Consumer Price Index (CPI) increased by 0.4% MoM, exceeding the 0.3% forecast, although the rise slowed from September’s 0.6%. Excluding food and energy, core CPI advanced 0.3%, unchanged from September’s pace but above expectations of 0.2%.

Although the monthly increase moderated, Commerzbank economists warn that “prices are still rising too quickly, even though the increase was somewhat smaller than in September.” They also emphasise that “core inflation, a key gauge of the underlying trend, thus remains (too) high and is no longer trending downward,”. Their assessment is that “the strong economy and the ongoing conflict in the Middle East suggest that inflation is unlikely to ease in the near term.”

Hawkish Fed comments strengthen bets on a 50 bps rate rise

A half-point increase in December may be necessary if October core CPI is “around 0.3% or higher.” That was the message from Fed Governor Christopher Waller ahead of the release. As inflation reached that threshold, traders began to factor in the prospect of a larger increase at the December meeting.

Support for additional monetary tightening also came from other Fed officials, among them Dallas Fed President Lorie Logan and Philadelphia Fed President Anna Paulson. Fed Vice Chair for Supervision Michelle Bowman, meanwhile, underlined the need to get inflation under control.

According to the CME FedWatch Tool, markets now fully discount a December Fed rate rise, assigning an 88.5% probability to a 25-basis-point (bps) increase and an 11.5% probability to a 50 bps rise. Expectations extend to further tightening next year: three more quarter-point increases are priced in by mid-2027.

US Dollar and Treasury yields climb as rate-rise bets increase

Demand for the US Dollar (USD) strengthened as interest rate expectations shifted, while US government bonds sold off sharply, most notably at the short end of the yield curve. On Tuesday, the policy-sensitive 2-year Treasury yield surged around 19 bps. The benchmark 10-year yield gained roughly 14 bps over the day and briefly pushed back above 5%.

With Veterans Day being observed on Wednesday, the US bond market is shut. The Greenback, however, continues to advance: the US Dollar Index (DXY) is trading near 102.50, closing in on October’s year-to-date peak of 102.94.

In the short term, Gold is likely to remain under pressure from the stronger US Dollar, high Treasury yields and mounting expectations of additional Fed tightening. Over a longer horizon, however, strong central bank purchases and continued inflows into Gold-backed exchange-traded funds (ETFs) could still offer a structural floor.

Technical Analysis: Sellers maintain the advantage below key daily SMAs

Trading beneath the 21-day Simple Moving Average (SMA) at $4,058 and the 50-day and 100-day SMAs leaves XAU/USD with a bearish daily-chart bias. Momentum is neutral according to the Relative Strength Index (RSI), which sits near 47. The Moving Average Convergence Divergence (MACD) is still positive, but shrinking green histogram bars point to a loss of bullish momentum.

Any recovery faces initial resistance at the 21-day SMA around $4,058, followed by the 50-day SMA at $4,178 and the 100-day SMA at $4,201. Sellers are likely to defend the recent range highs in that area. Initial support lies at the psychological $4,000 mark, ahead of the yearly low at $3,870.23. Should that low give way decisively, Gold could face additional selling pressure.

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