Gold recovers from YTD low, retakes $3,900; Fed hike bets and bullish USD to cap gains

Gold (XAU/USD) gains some positive traction during the Asian session on Friday, climbing back above the $3,900 mark and snapping a three-day losing streak to its lowest level since late September, which it touched the previous day. The US Dollar (USD) takes a breather after a strong three-day rally to its highest level since April 2025 and offers some support to the commodity. However, firming US Federal Reserve (Fed) rate hike expectations and Middle East uncertainties might continue to act as a tailwind for the Greenback. This, in turn, should keep a lid on any meaningful recovery for the precious metal.

Against the backdrop of hotter-than-expected US October consumer inflation figures, hawkish commentary from several Federal Reserve (Fed) officials prompted traders to price in a tighter monetary policy stance. In fact, the CME Group's FedWatch Tool indicates that a 25-basis-points (bps) rate hike in December is fully priced in, and traders are assigning around a 13% chance of a jumbo 50-bps increase. This, along with the overnight move higher in crude oil prices, led to an extended selloff in US Treasuries, lifting the yield on the benchmark 10-year government bond further beyond the 5% threshold and favoring USD bulls.

Meanwhile, US President Donald Trump on Thursday issued a fresh warning to Iran and said that those responsible for any attack on American officials would no longer exist. Trump added that he would not hesitate to launch further military action if the situation warranted it. Adding to this, Trump wrote in a Truth Social post that the US does not need a deal with Iran, adding that those days have long since passed. Moreover, attacks on Saudi Arabia's energy infrastructure and commercial ships in the Strait of Hormuz keep the geopolitical risk premium in play, which validates the positive USD outlook and should cap the Gold price.

Moving ahead, the US Producer Price Index (PPI) highlights Friday's economic docket. Furthermore, speeches from influential FOMC members would influence expectations about the Fed's policy path. Apart from this, the incoming geopolitical headlines might continue to infuse volatility in global financial markets and drive USD demand, providing some impetus to the commodity. Nevertheless, the XAU/USD pair remains on track to register weekly losses. Meanwhile, the fundamental backdrop seems tilted firmly in favor of USD bulls, suggesting that any subsequent rise in the gold price is more likely to be sold into and remain capped.

XAU/USD 4-hour chart

Technical Analysis

The XAU/USD pair maintains a near-term bearish bias following the recent repeated failures near the $4,150 horizontal resistance and a break below the 100-period Exponential Moving Average (EMA) on the 4-hour chart. Moreover, momentum indicators stay weak, with the Relative Strength Index (RSI) hovering near the oversold band at 35.43 and the Moving Average Convergence Divergence (MACD) holding in negative territory with the line around -15.22. This, in turn, hints that downside pressure is still dominant despite the early signs of exhaustion.

Hence, any further move up could face initial resistance near the $3,960 area ahead of the $4,000 psychological mark and the 100-period EMA at $4,037.06. A sustained recovery above this barrier would be needed to ease the current bearish setup and open the way for a broader corrective bounce towards the $4,100 round figure en route to the $4,150 barrier. On the downside, the $3,865-$3,855 region, or the year-to-date low, could act as an interim demand area, which, if broken, will set the stage for an extension of a well-established downtrend from the August swing high.