Gold is finally surging again, and the reason is that traders are starting to believe the Federal Reserve might leave interest rates alone this month.
After two weeks of selling pressure, the precious metal climbed toward $4,180 an ounce on Monday as investors reconsidered their expectations following comments from Fed Chairman Kevin Warsh.
This recovery comes despite a weekly loss of 0.7%, but the big picture remains ugly. The precious metal has dropped nearly 20% in value since tensions between Iran and the United States began in February and is considered to be in bear market territory.
However, there has been buying interest every time gold prices touch the $4,000 mark. This has been the case since August.
Kevin Warsh just complicated the Fed’s interest rate outlook
But what prompted this recent surge? It came following the alteration of expectations for US interest rates. The previous week’s reading on the level of inflation saw traders positioning themselves for another interest rate increase.
September witnessed higher-than-expected import prices in America, where energy, among others, increased in cost.
This helped to drive up the USD and make another rate increase more likely. But Warsh went ahead to speak, and this made traders lose faith in the likelihood of the rate increase.
Presently, the CME FedWatch Tool estimates that chances of an increase in the current month are only at 13%, while those for a December increase are around 89%.
The chances of an increase were even less than one in five.
The reason is quite clear for the gold situation. Unlike sovereign bonds and savings, gold does not pay any interest to its holder. In such a case, high interest rates will make gold investments less attractive as there are better ways to earn money. However, weak interest rate expectations will make gold more justified.
Interestingly, Warsh also mentioned how the Fed has possibly become too careful owing to lessons learned from the 2008 Global Financial Crisis.
He nevertheless sees room for stronger economic growth and more investment under what he described as “good policies”
Neither is indicative of the fact that the Fed has made any commitment to either option. Warsh, in particular, seems unwilling to tie the hands of the policymakers into having the solution for October or December without further evaluation of the economic information.
He also believes that AI has the potential to be a driver of economic demand, despite not having an understanding of how this adoption may impact employment rates.
For now, investors are watching the October 27-28 Federal Open Market Committee meeting and next week’s Personal Consumption Expenditures inflation report. The Fed uses that measure to assess progress toward its 2% inflation target.
Across the Atlantic, the International Monetary Fund expects the European Central Bank to raise rates by another 25 basis points at least once before year-end.
Gold is recovering, but the charts aren’t exactly celebrating
The technical picture is less encouraging than Monday’s price increase might suggest.
At approximately $4,176.14, XAU/USD remains below several important moving averages. Those levels matter because traders use them to identify whether buyers or sellers currently have the upper hand.
The first obstacle sits around $4,191, where the 21-day simple moving average could attract fresh selling.
Above that, the 100-day average stands near $4,239, while the 50-day average around $4,327 represents another difficult barrier.
Gold would need to close above the first two levels to weaken the immediate bearish setup. A sustained move beyond $4,327 would provide stronger evidence that the correction is losing momentum.
The 200-day moving average near $4,520 remains a major longer-term resistance level.
Meanwhile, the 14-day Relative Strength Index stands at 46, slightly below its neutral reading of 50. That suggests buying momentum remains relatively weak despite the recovery.
If sellers return, the former rising trendline near $4,000 becomes the next important area to watch.
Other precious metals also advanced Monday. Silver climbed 1.3% to $57.73, platinum gained 1.1% to $1,647.75, and palladium rose 1.7% to $1,131.29.
Elsewhere, oil prices slipped after Trump waived certain sanctions and tariffs affecting Russia, potentially allowing more Russian fuel into global markets.
With Monday’s US economic calendar empty and Fed officials observing their pre-meeting communications blackout, traders are focusing on dollar movements, Europe’s civil unrest, stronger Chinese economic data, and signs of improving geopolitical conditions.
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