$4,050: Gold advances as USD pauses rally fuelled by hot CPI; Fed hike bets set to limit gains

Gold posts a modest Wednesday gain as hopes for Iran diplomacy restrain the dollar’s sharp post-US CPI advance.
Expectations of faster Fed tightening support USD bulls, potentially limiting bullion’s gains.
Conflicting technical signals also call for caution when positioning for a substantial recovery.

Gold (XAU/USD) recovers to $4,050 in the latest session. Dip buying during Wednesday’s Asian trading helps reverse some of the previous day’s steep losses. With hopes for US-Iran diplomacy tempering demand, the US Dollar (USD) takes a pause after Tuesday’s stronger-than-expected US inflation data drove it to a near two-week high. That pause lends some support to gold. Expectations of more aggressive policy tightening by the US Federal Reserve (Fed), however, should constrain any substantial advance in the non-yielding metal, suggesting bullish traders should remain cautious.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Following a meeting of G7 foreign ministers in Paris on Tuesday, US Secretary of State Marco Rubio said the economic campaign against Iran was so devastating that major combat operations were not currently necessary. His remarks followed US President Donald Trump’s efforts to ease concerns about escalation after the midterm elections. Trump told reporters that fresh US attacks on Iran were highly unlikely, adding that negotiations to end the Middle East conflict had positive momentum. Iran, meanwhile, called on the US to fulfil its demands under a plan to reopen the Strait of Hormuz.

Prospects of a diplomatic breakthrough to end the US-Iran war are consequently improving, limiting gains in the safe-haven US Dollar. Nevertheless, Tuesday’s US Consumer Price Index (CPI) report strengthened the increasingly accepted view that the US central bank will raise borrowing costs in December, supporting USD bulls. According to the US Bureau of Labor Statistics (BLS), headline CPI increased 0.4% in October, exceeding the market forecast of 0.3%. Excluding volatile food and energy prices, core CPI advanced 0.3%. That matched September’s rise and was above the 0.2% estimate.

A larger 50-basis-point (bps) rate increase at the December 8–9 policy meeting could be considered following the stronger-than-expected 0.3% core CPI reading, Fed Governor Christopher Waller warned. He added that raising rates by only 25 bps would jeopardise the Fed’s credibility. Philadelphia Fed President Anna Paulson also said policy needed to remain restrictive to bring inflation back to 2%. Dallas Fed President Lorie Logan, meanwhile, suggested rate increases might need to proceed faster than previously expected. Together, these comments favour USD bulls and should limit gold’s gains.

9/10 Hawkish Score: Waller Signals December Rate Hike Risk

At 9/10, Waller’s FXS Speechtracker score sits substantially above his 7.3/10 historical average, reflecting a markedly more hawkish message and a clear preference for further tightening. He conditionally backed a potential half-point rate rise in December if October core CPI comes in around 0.3% or higher. Even with better data, he supported an increase of at least a quarter-point. This signals a forceful policy response to any indication that US inflation is moving away from target. His focus on widespread price increases, anticipated producer price and energy pressures, and the assessment that policy has not been restrictive enough reinforces upside risks to US Treasury yields and short-term interest rates.

A 3.17-point increase took the FXS Fed Sentiment Index to 145.50, confirming a pronounced move further into hawkish territory in line with the high FXS Speechtracker score. The reading remains well above the neutral 100 level. Markets are therefore likely to assign a greater probability to further Fed tightening, supporting the US Dollar relative to lower-yielding currencies.

1-hour XAU/USD chart

Technical Outlook

Below the 200-hour Simple Moving Average (SMA), around $4,024, XAU/USD has displayed some resilience, pointing to underlying support for the trend. Yet the metal remains below the 23.6% Fibonacci retracement at $4,080. Following repeated recent failures near horizontal resistance at $4,150, the short-term outlook is therefore broadly neutral. A Relative Strength Index reading near 41 indicates only limited exhaustion in the decline. Meanwhile, the Moving Average Convergence Divergence (MACD) recovery into positive territory points to weakening bearish momentum, rather than a decisive bullish impulse.

Further gains could therefore meet resistance at the 23.6% Fibo. level of $4,080. A break above that threshold could take the gold price towards $4,145-$4,150, where stronger selling pressure could emerge. Initial downside support lies at the 50.0% retracement of $4,008, followed by the 61.8% Fibo. level at $3,975. Further support is located at $3,929 and around the cycle low near $3,870.

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

Gold: Frequently Asked Questions

What makes Gold an investment choice?

Throughout human history, gold has served extensively as both a store of value and a medium of exchange, giving it an important role. Today, its appeal extends beyond its lustre and use in jewellery. The precious metal is widely regarded as a safe-haven asset, making it a favoured investment during periods of turbulence. Because gold is not dependent on a particular issuer or government, it is also commonly viewed as a hedge against inflation and currency depreciation.

Which buyers hold the most Gold?

The largest holders of gold are central banks. To support their currencies during turbulent periods, they typically diversify reserves and purchase gold, strengthening perceptions of their economies and currencies. Substantial gold reserves can underpin confidence in a country’s solvency. World Gold Council data show that central banks increased their reserves by 1,136 tonnes of gold, valued at around $70 billion, in 2022. That was the largest annual purchase on record. Emerging-market central banks, including those in China, India and Turkey, are rapidly expanding their gold reserves.

How does Gold move relative to other assets?

The US Dollar and US Treasuries, both major reserve and safe-haven assets, have an inverse correlation with gold. A weaker dollar generally accompanies higher gold prices, allowing investors and central banks to diversify their holdings during turbulence. Gold also tends to move inversely to risk assets. Rising equity markets typically weigh on its price, whereas selling in riskier markets tends to support the precious metal.

Which factors drive Gold prices?

Many factors influence gold prices. Its safe-haven role means geopolitical turmoil or concern about a deep recession can rapidly lift its value. With no yield of its own, gold tends to benefit from lower interest rates, while higher borrowing costs usually put it under pressure. Most price movements, however, depend on the performance of the US Dollar (USD), since gold is quoted in dollars (XAU/USD). Dollar strength generally restrains gold prices, while dollar weakness is likely to lift them.