Gold prices held onto their recent gains but struggled to break above the $4,200 psychological level during Monday’s European trading session. Federal Reserve Chair Kevin Warsh’s cautious comments on future monetary policy reduced market expectations for an October interest rate hike. Meanwhile, declining US Treasury yields after retreating from multi-year highs continued to support the non-yielding precious metal.
Despite the recent recovery, gold’s broader technical outlook remains cautious. XAU/USD is still trading below the 200-period Simple Moving Average (SMA) on the four-hour chart, suggesting that the latest rebound represents a corrective recovery within a broader bearish structure rather than the beginning of a confirmed uptrend.
The Relative Strength Index (RSI) stands at 55.1, indicating a modest bullish bias. The Moving Average Convergence Divergence (MACD) also remains in positive territory, although its momentum has weakened slightly. To strengthen the bullish outlook, gold needs to reclaim the $4,200 level and break above the $4,215–$4,220 resistance zone. A sustained move beyond this range could ease selling pressure and improve the medium-term outlook.
On the downside, immediate support is located around $4,150–$4,145, followed by the psychological $4,100 level. Further support lies near last week’s swing low at $4,075–$4,065. A decisive break below this area could expose gold to additional losses, potentially bringing the July year-to-date low near $3,957 back into focus.
Fed Outlook Shifts Gold Prices
Deutsche Bank strategists highlighted the importance of the Federal Reserve’s upcoming blackout period ahead of its October 27–28 policy meeting. Warsh refrained from challenging market expectations for interest rates, stressing that he would not prejudge the outcome of the upcoming meeting despite hotter-than-expected US inflation data released last week.
Markets interpreted Warsh’s relatively restrained tone as a positive surprise. According to Deutsche Bank, the probability of an October rate hike declined to approximately 15%, down from around 30% when he spoke. Equity futures also strengthened, with S&P 500 and Nasdaq futures each rising 0.15% after spending much of the session in negative territory. Stoxx futures advanced 0.68%.
However, uncertainty surrounding the Federal Reserve’s policy outlook continues to limit gold’s upside potential. Although expectations for an October rate hike have eased, traders remain concerned that persistent inflation could force the central bank to maintain a restrictive monetary stance.
According to the CME Group FedWatch Tool, markets are pricing in a probability of more than 90% that the Federal Reserve will raise interest rates in December. This outlook reflects growing concerns that inflationary pressures could remain elevated for longer than previously anticipated.
Energy prices are another key factor influencing expectations for future monetary policy. Crude oil climbed to its highest level in nearly a month on Friday as escalating geopolitical tensions in the Middle East and Eastern Europe heightened concerns about global energy supplies.
Geopolitical Risks Support Gold
Geopolitical developments continue to influence financial markets and commodity prices. Over the weekend, three tankers were reportedly damaged in the Strait of Hormuz as Iran’s Islamic Revolutionary Guard Corps (IRGC) navy maintained that the strategic waterway remained closed and that vessels could pass only with its authorization.
In Eastern Europe, Ukrainian attacks sparked fires at an oil export terminal and a storage depot in St. Petersburg on Sunday. Kyiv reportedly launched more than 1,000 drones toward Russia in one of the largest aerial attacks of the ongoing conflict.
Meanwhile, tensions between Saudi Arabia and Iran-backed Houthi rebels in Yemen have shown little sign of easing. Iran’s Supreme National Security Council secretary, Mohsen Rezaei, also warned that Tehran had prepared new retaliation plans should the United States and Israel resume attacks.
These developments have kept geopolitical risk premiums elevated, supporting crude oil prices and contributing to uncertainty across global financial markets. At the same time, shifting demand for safe-haven assets has influenced the US dollar and gold, leaving the precious metal caught between competing market forces.
XAU/USD Faces Key Resistance
Gold has remained within a relatively narrow trading range for more than three weeks as declining US Treasury yields and geopolitical uncertainty provide support, while expectations of tighter Federal Reserve policy continue to weigh on the market.
In the near term, the $4,200 level remains a crucial psychological threshold for XAU/USD. A sustained breakout above $4,220 could strengthen the recovery and improve the technical outlook. Conversely, a break below $4,065 would increase the risk of further losses, with the July low near $3,957 emerging as a potential downside target.
For now, traders may remain cautious while waiting for a clear breakout from the current range. Stronger buying momentum above resistance or renewed selling pressure below support could determine gold’s next directional move as markets assess the Federal Reserve’s policy outlook, Treasury yields, inflation risks, and ongoing geopolitical tensions.
