Gold holds on to Wednesday’s sharp gains, but a recovering US Dollar limits further upside.
Hawkish Fed expectations remain a key headwind for the non-yielding metal.
XAU/USD shows improving bullish momentum, with the 21-day SMA offering immediate support.
Gold (XAU/USD) stalls its rebound on Thursday as the US Dollar and Treasury yields regain ground following the previous day’s rout, triggered by US midterm election results that fuelled volatility across financial markets. At the time of writing, XAU/USD trades around $4,121, after reaching an intraday high of $4,146, its highest level in two weeks.
The precious metal surged 3.64% on Wednesday, while West Texas Intermediate (WTI) tumbled 8% as traders speculated that a Democratic sweep of Congress could restrict funding for Trump’s military campaign against Iran and increase pressure to end the war, now in its ninth month.
Moreover, the prospect of divided government eases concerns about the fiscal outlook, as passing new tax cuts or spending packages could become more difficult. This supports Treasury buying and pushes yields lower, weighing on the US Dollar (USD). The slide in Oil prices also offers some relief from inflation concerns, and together these developments drive renewed demand for Gold.
On Thursday, the US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 101.60, recovering from an intraday low of 101.20. The US 10-year Treasury yield rises to 4.89% from an earlier low of 4.83%.
Meanwhile, a hawkish Federal Reserve (Fed) outlook remains a key hurdle for bullion. Oil prices are still well above pre-war levels, keeping inflation risks alive.
With the Fed committed to bringing inflation back to its 2% target, traders expect interest rates to remain elevated for longer and anticipate a December rate hike, with the CME FedWatch Tool putting the odds at around 79%. Higher borrowing costs weigh on the non-yielding metal by increasing the opportunity cost of holding it.
Cleveland Fed President Beth Hammack reinforced the hawkish outlook on Thursday, saying “monetary policy needs to move to restrictive stance” as inflation has been “too high, moving in wrong direction.” She added that “gradual rate hikes are the best way to make sure the US Central Bank gets inflation back to 2%” and are less disruptive to the economy and financial system.
On the data front, US Initial Jobless Claims fell to 189K from 194K, below expectations of 196K, while the four-week moving average declined to 194.75K from 196.75K. Attention now turns to Friday’s Nonfarm Payrolls (NFP) report for fresh clues on the Fed’s policy path.
Technical analysis: Bulls eye 50-day and 100-day SMAs near $4,200
On the daily chart, XAU/USD maintains a capped bias as spot holds below the medium- and long-term moving averages. The 21-day simple moving average (SMA) at $4,077 now underpins the recovery as immediate support, but price remains below the 50-day, 100-day and 200-day SMAs.
Momentum has improved, with the Relative Strength Index near 51 and the Moving Average Convergence Divergence (MACD) turning positive, which hints at rebuilding bullish pressure but does not yet overturn the structurally bearish setup.
On the downside, initial support is seen at the 21-day SMA around $4,077, followed by the psychological $4,000 level and the year-to-date low of $3,870.
On the upside, immediate resistance is seen at the closely aligned 100-day and 50-day SMAs at $4,203 and $4,205, respectively. A more substantial barrier emerges at the 200-day SMA near $4,468. Only a clear daily close above these clustered moving averages would start to ease the prevailing bearish bias.
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