Gold prices extended their recovery from a two-month low of $4,067 on Monday, with buyers attempting to keep XAU/USD above the $4,200 psychological level as the US Consumer Price Index (CPI) week began. The rebound came as the US Dollar paused its pullback from an 18-month high, while investors assessed inflation risks, elevated Treasury yields, and the Federal Reserve’s monetary policy outlook.
Despite the recent recovery, gold remains vulnerable to further losses as a stronger US Dollar and expectations of tighter monetary policy continue to weigh on market sentiment.
XAU/USD Forecast: Bearish Momentum Persists
Gold’s short-term technical outlook remains bearish, with XAU/USD trading below the 20-day Bollinger Band moving average at $4,239. Nevertheless, prices are holding slightly above the lower Bollinger Band at $4,057 and the key horizontal support level at $4,100.
The Relative Strength Index (RSI) stands at 37, indicating that bearish momentum remains dominant. Meanwhile, the Moving Average Convergence Divergence (MACD) remains in negative territory, reinforcing the current downside bias. However, neither indicator suggests that gold has entered an extreme oversold condition.
On the upside, initial resistance is located at $4,239, followed by the upper Bollinger Band near $4,420. A sustained break above these levels could ease selling pressure and improve the short-term technical outlook for gold.
On the downside, immediate support remains at $4,100, followed by the lower Bollinger Band at $4,057.47. A decisive break below this area could trigger additional selling and expose XAU/USD to deeper losses.
Rising Oil Prices Boost US Dollar
US Treasury yields remained near multi-year highs as rising oil prices intensified concerns about persistent inflation. Growing government debt, fiscal uncertainty, and resilient US economic growth have also contributed to upward pressure on Treasury yields.
West Texas Intermediate (WTI) crude oil prices rose approximately 3% on Thursday following reports that the Pentagon had ordered preparations for potential new military strikes against Iran. According to Axios, military action could occur before the US midterm elections in November.
Strategists at Brown Brothers Harriman highlighted the broader implications of elevated energy prices, noting that sustained increases could push inflation expectations, interest rates, and benchmark bond yields higher. These conditions could also favor energy-exporting currencies and the US Dollar over currencies from energy-importing economies.
The strategists added that the relative strength of the US economy and strong foreign demand for US securities provided further support for the Greenback.
The US Dollar Index (DXY), which tracks the dollar against six major currencies, traded near 102.40, approaching its 18-month high of 102.53 recorded earlier in the week. Expectations of a hawkish Federal Reserve continued to underpin the US currency, creating an additional headwind for gold prices.
Fed Rate Hike Risks Weigh on Gold
Federal Reserve Governor Christopher Waller said on Thursday that further interest rate increases remained necessary, although the pace of tightening could remain flexible. He also warned that inflation was still too high, pointing to AI-related developments and ongoing energy shocks as persistent inflationary pressures.
The Federal Reserve’s September meeting minutes, released on Wednesday, revealed unanimous support for a 25-basis-point rate increase to a target range of 3.75%–4.00%. Most policymakers also considered another rate hike appropriate by the end of the year because of continuing inflation risks.
However, the minutes did not establish a firm commitment to another increase at the October 27–28 meeting. Financial markets broadly anticipated that the Fed would leave interest rates unchanged at that meeting.
A stronger US Dollar, elevated Treasury yields, and the possibility of additional monetary tightening have reduced demand for non-yielding gold. Higher bond yields increase the opportunity cost of holding precious metals, making gold less attractive compared with interest-bearing assets.
Despite these headwinds, longer-term demand from gold exchange-traded funds (ETFs) and central banks continues to provide underlying support for the precious metal.
Central Bank Buying Supports Gold Outlook
TD Securities noted that sustained demand from discretionary traders, ETFs, and central banks continues to provide a solid foundation for gold prices. This underlying demand could help limit further downside during the current market correction.
The firm also suggested that gold could become increasingly decoupled from real interest rates and begin a new upward trend extending into 2027.
For now, the XAU/USD outlook reflects a battle between short-term bearish pressure from the US Dollar and elevated Treasury yields and longer-term support from investment demand and central bank purchases.
The $4,100 level remains a crucial support zone for gold. A sustained move above $4,239 could improve the technical outlook and open the door to a stronger recovery. Conversely, a decisive break below $4,057 could expose XAU/USD to further downside risks.
Investors will closely monitor upcoming US CPI data and developments in Federal Reserve policy expectations for fresh trading signals. Inflation figures, Treasury yield movements, and changes in the US Dollar’s momentum are likely to remain key drivers of gold prices in the near term.