Gold News: Rally Stalls as Fed Rate Bets Weigh on XAUUSD

Gold Drops for Second Straight Week

Spot Gold (XAUUSD) is headed for a second straight weekly loss and the selling is not random. West Texas Intermediate crude oil is back above $98 a barrel. Traders are pricing in a 58% chance of at least one more quarter-point rate increase before year end. The U.S. Dollar Index is sitting near a six-week high. Every one of those is pointed against gold and none of them are letting up.

Oil Is Doing the Damage

Spot Brent crude oil held above $105 a barrel Friday while Iran negotiations went nowhere useful. Officials on both sides pointed to progress. Traders did not believe it. The Strait of Hormuz is still largely shut and roughly 14 million barrels per day are still off the market. That is the inflation problem gold traders care about. Higher oil means higher transportation costs, higher production costs, and higher prices hitting consumers across the economy. When that chain gets going, the Federal Reserve does not cut rates. The Fed stays put or raises again. That is bearish gold every time.

The Rate Story Is Getting Worse

A 58% probability of another rate increase before December is not where gold bulls wanted this week to land. Expectations shifted because the economic data did not cooperate. Weekly jobless claims dropped. Manufacturing activity moved higher. The economy is not slowing down the way it needs to for the Fed to pivot and gold is absorbing that reality all week. Higher rates for longer means higher real yields and higher real yields are the one thing that consistently pulls money out of gold.

The Dollar Is Not Helping

The U.S. Dollar Index pushed to a six-week high this week on the back of the same data that is pushing rate expectations higher. Jobless claims falling and manufacturing picking up gave dollar bulls exactly what they needed. A stronger dollar makes gold more expensive for buyers holding other currencies and that is additional selling pressure on top of the rate and inflation problems gold is already dealing with.

Iran Is the Wrong Trade for Gold

Washington wants Iran’s enriched uranium stockpile gone. Tehran is not giving it up and keeps saying the nuclear program is peaceful. That standoff has not moved in weeks. The Strait of Hormuz is the other problem. One fifth of global oil and liquefied natural gas shipments used to flow through that waterway. Now there is talk of toll systems and control measures that would change how access works and U.S. officials have rejected every version of that idea.

The instinct is to buy gold on geopolitical risk. The instinct is wrong right now. War escalation means higher oil means higher inflation means the Fed stays on hold means yields stay elevated means gold goes lower. The chain has not broken all year and this week proved it again. Peace is what gold needs. A deal that takes oil below $90 gives the Fed room to cut and that is the only path to higher gold prices from here.

Spot Gold (XAUUSD) Technical Analysis

Spot gold is consolidating inside a tight range for the fifth straight session on Friday. The price action suggests investor indecision and impending volatility. The tight range is being controlled by retracement levels. The wider range is being compressed by the 50-day and 200-day moving averages.

XAUUSD is currently being capped by a long-term 61.8% level at $4541.88. Support is $4481.78. This is the line that separates the bull market from the bear market and represents a 20% drop from the all-time high at $5602.23.

Trader reaction to $4541.88 and $4481.78 will set the tone today.

A sustained move over $4541.88 will indicate the presence of buyers. If this move generates enough upside momentum then look for a surge into the 50-day moving average at $4667.32.

A sustained move under $4481.78 will signal the presence of sellers. This will put the market in bear market territory. A sustained move under this level could create the downside momentum needed to challenge 61.8% support at $4401.84, followed by the 200-day moving average at $4371.39.

The 50-day and 200-day moving averages are on a collision course and could be setting up for a major crossover event in the near future. The current price action could be just the calm before the storm.

What to Watch

Spot Brent crude oil is above $105. The probability of another rate hike sits at 58%. The U.S. Dollar Index is at a six-week high. All three are working against Spot Gold (XAUUSD) at the same time and not one of them faded this week. The Iran negotiations are the only thing that changes that picture. A deal that actually sticks takes oil lower, gives the Fed room to cut, and breaks the chain that has been dragging gold down all year. That deal does not exist yet. Until it does, rallies are for selling.

The 61.8% level at $4541.88 is the cap and $4481.78 is the floor. A break above $4541.88 targets the 50-day moving average at $4667.32. A break under $4481.78 puts gold in bear market territory and opens $4401.84 followed by the 200-day moving average at $4371.39. The moving average crossover building underneath all of this is the bigger story and it has not triggered yet.

If you’d like to know more about how to trade gold, please visit our educational area.