Gold (XAU/USD) pared earlier gains to trade modestly higher but below $3,900 in early European hours, supported by a softer US Dollar as markets weighed prospects for a diplomatic opening in the US-Iran conflict. Iranian negotiators reportedly held a third straight day of talks with Qatari mediators, while Tehran floated a 48-hour plan to reopen the Strait of Hormuz subject to conditions including sanctions relief linked to the Islamabad memorandum and a reduced US military footprint. US President Donald Trump said talks were going well, though he did not rule out further military action after the 3 November midterm elections, and Iran’s Supreme Leader, Mojtaba Khamenei, instructed commanders to prepare for renewed confrontation. Additional Ukrainian strikes on Russian oil refineries kept a geopolitical risk premium in place.
At the same time, energy-driven inflation concerns and resilient US data reinforced expectations of further Federal Reserve tightening. The CME Group’s FedWatch Tool shows markets assigning about a 75% chance of a rate rise in December, keeping bullion close to the October 2025 low seen on Friday. Attention turns to the ISM Manufacturing PMI later on Monday, the ISM Services PMI on Wednesday, and the Nonfarm Payrolls report on Friday. Technically, the metal remains below $4,000 and the 100-period EMA, with the RSI at 28.94; resistance is seen near $4,068.55, while support sits around $3,870.
Technical Strategy and Key Levels
We should approach gold derivatives with a sell-on-rally strategy over the coming weeks while remaining cautious about short-term relief bounces. Although prices have fallen below the critical $4,000 level, an oversold Relative Strength Index of 28.94 suggests the immediate selling pressure might be temporarily exhausted. Historical patterns show that when gold’s 4-hour RSI dips below 30, brief upward pullbacks occur frequently, giving us better entry points for short positions rather than chasing the market down.
We must keep a close eye on technical resistance around the 100-period moving average near $4,068.55, as any price recovery toward this zone is likely to attract strong selling interest. On the downside, a decisive break below Friday’s low around $3,870 would signal a continuation of the broader downtrend toward deeper support zones. Managing risk with tight stop-losses above key resistance levels will be vital as technical indicators like the MACD remain firmly negative.
Macro Headwinds and Geopolitical Risks
From a fundamental standpoint, expectations for higher US interest rates continue to create heavy headwinds for non-yielding assets. Financial markets are currently pricing in a 75% probability of a Federal Reserve rate hike in December, driven by sticky inflation and solid growth metrics. Historically, sustained rate-hike cycles coupled with rising real yields have capped gold’s upside potential, making sustained long positions risky right now.
Geopolitical developments around the US-Iran conflict and energy supply routes in the Strait of Hormuz could still trigger sudden safe-haven spikes. However, unless diplomatic talks stall completely or military escalation expands significantly, geopolitical headlines may only offer temporary relief to gold bulls. We should prepare for heightened volatility around this week’s major economic releases, including the ISM PMI surveys and Friday’s Nonfarm Payrolls report.
