Gold traded near a two-month low in Asia on Wednesday, hovering around $4,100 after touching that area a day earlier, as firmer US Dollar demand weighed on XAU/USD ahead of the Federal Open Market Committee minutes. Recent US data pointed to moderating inflation alongside a slight cooling in the labour market, yet rate expectations remain tilted towards tighter policy. Futures pricing via the CME Group’s FedWatch Tool implies about an 85% probability of a December increase in borrowing costs, keeping attention on any guidance around further hikes and broader policy settings that could steer the USD and non-yielding bullion.
Geopolitical risk and higher US bond yields supported the dollar as developments in the Middle East stayed in focus, with control claims along Yemen’s Red Sea coast and retaliatory strikes reported, while Iran increased attacks in the Strait of Hormuz over the past week. Oil’s rebound from a one-month low added to inflation concerns and helped keep yields near multi-year highs, even as China’s central bank extended its gold-buying to 23 consecutive months. Technically, gold remains below the 100-period SMA on the 4-hour chart and the 61.8% Fibonacci retracement; MACD reads 3.35 and RSI is 44.26, with $4,100 the key level before $3,938, while resistance sits at $4,228, $4,248 and $4,317.
Derivative Trading Considerations Amid Rate Hike Expectations
We suggest derivative traders tread carefully as gold hovers near its two-month low of $4,100 due to a surging US dollar. With the market pricing in an 85% chance of a December interest rate hike, the upcoming FOMC minutes will likely dictate the next major move. Historically, rising interest rate expectations increase the opportunity cost of holding non-yielding gold, which often drags the metal’s price down.
We are also keeping a close eye on escalating Middle East conflicts, particularly around the Bab al-Mandeb Strait and the Strait of Hormuz, which have pushed oil prices up from recent lows. These geopolitical tensions fuel energy-driven inflation fears, keeping US bond yields near multi-year highs and strengthening the dollar. This environment typically favors bearish positions on gold, as the US dollar remains the preferred safe haven during these specific market conditions.
Technical Levels and Trading Strategy
From a technical standpoint, we recommend waiting for a confirmed break below the key support level of $4,100 before committing to heavy short positions. This level aligns with the crucial 78.6% Fibonacci retracement, and a clean break could open the doors toward the next major floor at $3,938. On the flip side, we see strong resistance clustered between $4,228 and $4,248, meaning any short-term rallies might face quick selling pressure.
While China’s central bank has extended its gold-buying streak for a 23rd consecutive month, this physical demand has not been enough to offset the broader bearish sentiment. Derivative traders should use tight stop-loss orders to manage risk, especially with the high volatility expected around the FOMC release. We believe focusing on short-term swing trading within these defined technical boundaries is the most prudent approach for the coming weeks.
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