$4,000 breached: Gold retreats as traders weigh a half-point Fed rate hike

Hawkish Fed expectations remain the dominant influence on sentiment, leaving Gold struggling to draw buyers.
A December rate increase is fully priced in as markets respond to stronger US inflation and hawkish Fed commentary.
41 on the RSI signals subdued buying momentum, with XAU/USD retaining a bearish bias beneath the 20-day SMA.

Gold (XAU/USD) falls back below $4,000 on Thursday. Most of last week’s gains have been erased as expectations of more aggressive Federal Reserve (Fed) interest rate increases push the US Dollar (USD) to a new year-to-date high. A subsequent retreat in the Greenback has helped Gold rebound from an intraday trough of $3,924. XAU/USD stands at around $3,952 at the time of writing, a daily loss of 0.82%.

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Near 102.88, the US Dollar Index (DXY) has eased from its peak of 103.08. The index measures the Greenback against a basket of six major currencies.

Ahead of Tuesday’s US inflation release, Fed Governor Christopher Waller raised the possibility of a 50-basis-point (bps) increase in December. He said a half-point rise could be necessary if October core Consumer Price Index (CPI) registered “around 0.3% or higher.” The data met that condition: monthly core CPI increased 0.3%, exceeding the 0.2% forecast. Headline CPI climbed 0.4%, also above the 0.3% estimate.

December Fed hike fully priced in as Dollar gains momentum

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 pattern 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 say "the combination of hawkish Fedspeak and a US CPI beat earlier this week continues to pay dividends for the Dollar,". They emphasise that "real front-end rate differentials [are] continuing to fuel strong Dollar momentum" and describe the move as follows: "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 forthcoming US 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.

Developments between the US and Iran remain another focus. US Vice President JD Vance is considering face-to-face discussions with senior Iranian security official Mohsen Rezaei, the Wall Street Journal (WSJ) reported. Talks remain at a preliminary stage, with no date agreed. Any indication of progress towards a deal could maintain pressure on Oil prices. If Oil prices fall on a sustained basis, inflation pressures could ease, leading traders to reduce expectations of more aggressive Fed rate increases.

Technical outlook: $4,042 SMA caps Gold

Below the Bollinger Bands’ 20-day Simple Moving Average (SMA) at $4,042, XAU/USD retains a bearish daily-chart profile. The 14-day Relative Strength Index (RSI) sits near 41, signalling limited buying interest and relatively muted momentum. This is despite a slightly positive Moving Average Convergence Divergence (MACD) reading above zero.

$4,000 is the first upside resistance level, ahead of the mid-Bollinger 20-day SMA at $4,042. A sustained move through both would clear a path towards $4,150 and the upper Bollinger band around $4,199. Initial downside support lies at the lower Bollinger band near $3,885. A decisive break beneath that area would likely strengthen the existing bearish bias and leave deeper retracement levels exposed.

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

Gold: key questions answered

What makes Gold an investment choice?

Widely used both to store value and to facilitate exchange, Gold has held an important place throughout human history. Beyond its lustre and use in jewellery, the precious metal is now widely regarded as a safe-haven asset: an investment considered attractive during periods of turbulence. It is also commonly viewed as protection against inflation and currency depreciation, since it does not depend on a particular issuer or government.

Which buyers hold the most Gold?

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

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. Dollar depreciation generally coincides with rising Gold prices, allowing investors and central banks to diversify their holdings during turbulent periods. Risk assets also tend to move in the opposite direction to Gold. Stock-market gains typically weigh on the metal’s price, whereas selling in riskier markets generally supports it.

Which factors drive Gold prices?

A broad set of influences can shift Gold prices. Its safe-haven status means geopolitical instability or concerns about a deep recession can trigger a rapid rise. Because Gold generates no yield, lower interest rates generally support it, while more expensive borrowing usually weighs on the metal. Most price movements nevertheless hinge on the US Dollar (USD), as Gold is dollar-denominated (XAU/USD). Dollar strength tends to restrain Gold prices; a weaker Dollar is more likely to lift them.