Gold faces pressure near $4,050 as bets on Fed rate hikes gather momentum

• Expectations of further Fed rate hikes dampen sentiment towards Gold, which has stabilised but is finding little upward momentum.
• A December Fed rate increase is fully priced into markets, while a larger 50 bps hike remains a possibility.
• The near-term technical bias remains bearish for XAU/USD as the pair struggles to recover above its 21-day SMA.

Gold (XAU/USD) is finding its footing on Wednesday, trading around $4,050 at the time of writing, a gain of 0.47% for the day. The recovery follows a 2.67% decline the previous day, when stronger-than-forecast US consumer inflation and hawkish comments from Federal Reserve (Fed) officials reinforced expectations of a more aggressive path of interest rate hikes.

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

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,” adding that, in their view, “the strong economy and the ongoing conflict in the Middle East suggest that inflation is unlikely to ease in the near term.”

Could hawkish Fed signals pave the way for a 50 bps hike?

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

Support for additional monetary tightening also came from other Fed officials, including Dallas Fed President Lorie Logan and Philadelphia Fed President Anna Paulson. Fed Vice Chair for Supervision Michelle Bowman, meanwhile, emphasised the importance of bringing inflation under control.

According to the CME FedWatch Tool, a December Fed rate hike is now fully priced in, with markets 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: traders have priced in three additional quarter-point hikes by mid-2027.

How are further rate-hike expectations lifting the US Dollar and Treasury yields?

Demand for the US Dollar (USD) strengthened as rate expectations shifted, while US government bonds suffered a sharp sell-off, led by 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, meanwhile, rose roughly 14 bps over the day and briefly crossed 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, moving towards its year-to-date peak of 102.94 set in October.

Near-term pressure on Gold is likely to persist as the US Dollar strengthens, Treasury yields remain elevated and expectations of additional Fed tightening build. Over the longer term, however, strong central bank purchases and continuing inflows into Gold-backed exchange-traded funds (ETFs) could still underpin a structural floor for prices.

Technical Analysis: Can Gold regain key daily SMAs as bears maintain their grip?

Trading below the 21-day Simple Moving Average (SMA) at $4,058, alongside the 50-day and 100-day SMAs, leaves XAU/USD with a bearish daily-chart bias. Momentum readings are mixed: the Relative Strength Index (RSI), near 47, signals neutral momentum, while the Moving Average Convergence Divergence (MACD) holds above zero. Nevertheless, shrinking green histogram bars point to a loss of bullish momentum.

The first hurdle for a recovery is the 21-day SMA around $4,058. Beyond it, resistance lies at the 50-day SMA of $4,178 and the 100-day SMA of $4,201, where sellers are likely to protect the recent range highs. Immediate support is provided by the psychological $4,000 mark, ahead of the yearly trough at $3,870.23. A clear break beneath that low could leave Gold vulnerable to additional selling pressure.

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