Gold consolidates near two-week top as modest USD bounce and Fed hike bets cap upside
- Gold extends the rally further beyond $4,100 as the US elections-driven USD selling remains unabated.
- Falling oil prices ease inflation fears and weigh on US bond yields, further supporting the commodity.
- Hawkish central bank expectations could cap the bullion as traders keenly await the US NFP report.
Gold (XAU/USD) is consolidating its strong weekly gains, trading above $4,100 through the first half of the European session, close to a two-week high set earlier this Thursday. The US Dollar (USD) stalls the post-US election fallout and stages a modest intraday bounce from its lowest level since late September. Moreover, expectations of a hawkish US Federal Reserve (Fed) cap the precious metal.
Democrats' overwhelming victory in the US midterm elections cleared a major source of uncertainty and lowered expectations that US President Donald Trump will resume military strikes against Iran. In fact, Top Senate Democrat Chuck Schumer vowed on Wednesday to push for an end to the Iran war and said that his party could use control over government funding to press for that goal. The optimism drags crude oil prices to a two-month low, easing inflation fears. Moreover, expectations that a fiscal gridlock in Washington could limit government spending further put downward pressure on US bond yields, which keeps USD depressed and acts as a tailwind for the commodity.
Dollar reaction muted despite scale of Democratic win
Analysts at MUFG/BTMU observe that the “scale of the win for the Democrats – which has surpassed any predictions reported prior – has not been matched by the scale of moves in the financial markets,” with the Dollar and US Treasury yields only modestly softer so far. They argue that a shift in the political backdrop could still prove pivotal for the currency: “That would certainly reverse the move lower we are seeing now in the dollar and Treasury yields,” if subsequent developments were to reprice policy or geopolitical risks. Conversely, MUFG/BTMU suggest that “if Trump does not attack Iran and he sees this repudiation of his policies from voters as reason to seek a deal, an extension of dollar weakness is much more likely,” underscoring how the post-election policy response may determine whether the current Dollar pullback deepens or reverses.
Despite the political shift, expectations for further tightening by the US Federal Reserve (Fed) remain largely intact. According to the CME Group's FedWatch Tool, traders are still pricing in over an 80% chance that the US central bank will raise borrowing costs in December. The bets were reaffirmed by the better-than-expected US ADP report, which showed that private-sector employment increased by 86,000 in October 2026, matching the previous month's downwardly revised reading. Separately, the Institute for Supply Management's (ISM) Services PMI dipped to 54.5 last month, from 54.9 in September, but remained above the 50 threshold that indicates continuous expansion.
Moreover, bets for interest rate hikes by other major central banks might contribute to capping gains for the non-yielding Gold. In fact, the Bank of England (BoE) is widely expected to raise its main interest rate by 25 basis points (bps) at its policy meeting later today. Meanwhile, minutes from the September Bank of Japan (BoJ) revealed that policymakers debated the need for continued and potentially faster-paced rate hikes. Adding to this, markets are pricing in a greater chance of a December rate hike by the European Central Bank (ECB) and the Swiss National Bank (SNB). This, in turn, warrants some caution before positioning for any further appreciating move for the precious metal.
Traders might also opt to wait for the release of the closely watched US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report on Friday. The crucial data, along with speeches from influential FOMC members, will be looked at for more cues about the Fed's future policy path and drive USD demand in the near term. Apart from this, further developments surrounding the Middle East crisis could infuse some volatility and provide some impetus to the Gold price.
XAU/USD 4-hour chart
Technical Analysis
In the four-hour chart, the XAU/USD pair keeps a constructive bias following Thursday's breakout above the 23.6% Fibonacci retracement level of the August-October downswing and the 200-period Simple Moving Average (SMA). Meanwhile, the Relative Strength Index (RSI) at 75.77 is in overbought territory, and the Moving Average Convergence Divergence (MACD) line is advancing above its signal with a positive, expanding histogram, hinting that bullish pressure persists even as the rally looks mature.
Hence, the immediate focus remains on whether bulls can clear the 38.2% Fibo. retracement at $4,186 without triggering a corrective pullback from overbought conditions. The next hurdle aligns with the 50.0% level at $4,283 and then $4,380, while the broader Fibonacci band up to $4,518 and $4,695 caps the medium-term recovery path. On the downside, the 200-period SMA around $4,124, followed by the 23.6% level at $4,065, could protect the immediate downside. A break below the latter would expose the structural floor closer to the recent cycle low near $3,871.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
