Gold (XAU/USD) rose for a second day, reaching a fresh weekly high into Friday’s European session as US bond yields eased from multi-year highs after a pullback in crude oil prices tempered near-term inflation fears. That reduced support for the US Dollar (USD), though the Federal Reserve’s hawkish bias continued to underpin the currency and limited upside in the non-yielding metal. The Fed voted unanimously at its September meeting to lift rates for the first time since 2023, while the dot plot pointed to one additional increase this year; CME Group FedWatch data put the odds of a hike at 54% in October and about 88% in December. Separately, Iran’s Islamic Revolutionary Guard Corps said it struck a Togo-flagged tanker in the Strait of Hormuz, and US President Donald Trump said he was nearing a decision on whether to resume large-scale attacks on Iran.
Technically, XAU/USD has stalled near the 100-day Exponential Moving Average (EMA) at $4,368, keeping the near-term bias bearish despite holding above Fibonacci support. Price sits just above the 50.0% retracement at $4,320, with the Relative Strength Index (RSI) at 49.52 near neutral, while the Moving Average Convergence Divergence (MACD) at -19.60 remains negative. Resistance is flagged at the 38.2% retracement at $4,408, then $4,368, with further levels at $4,516 and the $4,692 swing high; support lies at $4,320, then $4,232 and $4,107, with $3,947 cited as a deeper floor.
US Dollar Outlook and Fed Policy Implications
We advise derivative traders to prepare for sustained strength in the US Dollar (DXY) as the Federal Reserve pivots back to a hawkish stance. With the CME FedWatch tool pricing in an 88% probability of a December rate hike, the narrowing of interest rate differentials is quickly reversing. Historically, during unexpected Fed tightening cycles, the Dollar Index has rallied by an average of 4% in the following month, which will likely keep a heavy lid on gold.
At the same time, we must closely monitor the escalating tensions in the Middle East, particularly around the Strait of Hormuz where threats to oil shipping continue to brew. High energy prices historically fuel inflation, which only strengthens the Fed’s hawkish case and supports the greenback. For options traders, this combination of geopolitical panic and rising interest rates suggests utilizing long volatility strategies on XAU/USD to capture sudden market swings.
Technical Analysis and Trading Strategy for Gold
Technically, we believe the near-term bias for gold remains bearish as the price struggles below its 100-day Exponential Moving Average at $4,368. Key momentum indicators like the MACD sitting at -19.60 suggest that sellers are still in control. Derivative traders should consider building short positions on temporary rallies toward $4,408, targeting a breakdown below the $4,320 support level down to $4,232.
However, we urge traders to remain cautious and avoid overleveraging before we see a clear directional breakout. Upcoming US macroeconomic data, such as today’s industrial production numbers, will provide immediate clues for short-term USD movement. Placing tight stop-losses just above the $4,368 and $4,408 resistance zones will help protect capital in this highly unpredictable market.
