Gold gains on geopolitics as Fed hike bets shift to December

• Gold recovers to above $4,130 as falling yields offset a hawkish Fed.
• Strait of Hormuz tension keeps WTI elevated despite Trump remarks.
• Markets price in an 81% chance of a 25 bps Fed rate hike in December.

Gold (XAU/USD) price edges higher on Thursday, underpinned by lower US Treasury yields and a weaker US Dollar, even as Federal Reserve (Fed) officials support further tightening by the US central bank. At the time of writing, XAU/USD trades at $4,130, up 0.48%, after bottoming near $4,103.

Bullion rises on falling US yields, despite Fed hawkish rhetoric

The Middle East crisis continues to pressure on inflation as energy prices remain high, pushing global bond yields to multi-year record highs. Explosions around the Strait of Hormuz keep West Texas Intermediate (WTI), the US crude benchmark, at $90.85, up over 2%, which posted earlier gains of more than 4% if not for comments by US President Donald Trump.

Trump said that the US won’t attack Iran before the midterm elections. Nevertheless, an Axios report showed that US and Israeli officials said that Iranian leaders are suspicious of Trump’s comments, adding that Iranian leaders want to avoid a third surprise attack.

Federal Reserve policymakers made some hawkish comments but failed to provide forward guidance on October. St. Louis Fed President Alberto Musalem commented that inflation is high and that the strength of the labor market suggests the Fed must focus on tackling it.

Fed is hawkish but patient at the same time

Earlier, Fed Governor Christopher Waller eyed additional rate hikes but stressed that they do not need to be consecutive, shutting the door on the October meeting.

Money markets show that a rate hike in the October 27-28 meeting is a long shot. But for December, the odds are near 81% that the Fed will raise rates by 25 basis points.

On the data front, Initial Jobless Claims for the week ending October 3 came in at 197K, below forecasts of 200K and the prior week's 199K, suggesting an ongoing low-hire, low-fire jobs market.

Next for Gold traders, they must be attentive to geopolitical developments, the behavior of US Treasury yields and the US Dollar. Regarding US economic data, the University of Michigan Consumer Sentiment survey for October is expected to provide clues about households’ views on the economy and inflation.

XAU/USD technical analysis: Gold bearish bias intact, below $4,200

Price action reaffirms that the downtrend remains intact, even though Gold buyers stepped in, pushing spot prices above $4,100. Worth noting that Wednesday's candle engulfs the price action of the day, an indication that a ‘bullish harami’ looms. Nevertheless, further confirmation is needed, like a decisive breakout of key resistance levels, before XAU turns bullish

The Relative Strength Index (RSI) remains bearish, indicating further downside.

Therefore, Gold’s first support is $4,100. Below the next stop is $4,000, ahead of the July 29 swing low of $3,996 and then it challenges the year-to-date (YTD) low of $3,941.

Should XAU/USD reclaim $4,200, this clears the path to test the confluence of the 100- and 50-day Simple Moving Averages (SMAs), each at $ 4,263 and $4,332, respectively. Once those levels are cleared, the next stop is $4,500, ahead of the 200-day SMA at $4,529.