Gold Rises on Cautious Fed and Geopolitical Tensions

Key Moments

Gold Edges Higher as Markets Scale Back Fed Hike Expectations

Gold price (XAU/USD) moved higher toward $4,175 during early Asian trading on Monday, with the metal rebounding as expectations for further Federal Reserve rate hikes eased. Participants continued to track developments around geopolitical risk and Middle East tensions, which remained a key driver for safe-haven flows.

Despite U.S. inflation data coming in stronger than anticipated, positioning in rates markets shifted. Fed Chair Kevin Warsh expressed confidence in the resilience of the U.S. economy but refrained from outlining a clear path for interest rates. According to the CME’s FedWatch Tool, traders were largely expecting the Fed to keep policy unchanged at its October meeting, while assigning a 91.8% probability to a rate increase in December.

“While inflation remains a concern and further tightening cannot be ruled out, Warsh’s latest tone suggests little urgency to deliver consecutive rate hikes,” said Gerald Gan, chief investment officer at Reed Capital Partners.

Geopolitics and Energy Risks Stay in Focus

US President Donald Trump said he cut a diesel export deal with Russia and blocked numerous sanctions because he doesn’t want to drive Vladimir Putin away from peace talks with Ukraine, per Bloomberg.

At the same time, geopolitical risk in the Middle East remained elevated. An Iranian official stated on Sunday that Tehran has readied a fresh retaliation plan in the event of any renewed U.S.-Israeli attack. Maritime authorities reported several separate attacks on commercial ships near the Strait of Hormuz. Persistent frictions between Russia and Ukraine, together with ongoing conflicts in the Middle East, were seen as potential catalysts for renewed oil-inflation concerns that could influence sentiment toward gold.

Global Bond Rally Extends as AI Growth Concerns Dominate

A sharp rally in global rates markets unfolded alongside the move in gold. Deutsche Bank’s Early Morning Reid report noted that “the theme of the day was a big global rate rally, as the prospect of slower AI growth pushed yields lower across the board.” In the U.S., “the 2yr yield (-5.9bps) fell to 4.74%, whilst the 10yr yield (-12.7bps) was down to 5.06%.” The bank added that this was “a global pattern as well, with yields on 10yr bunds (-5.3bps), OATs (-8.5bps) and BTPs (-6.7bps) all falling over the session.”

Deutsche Bank emphasized that this rally occurred “even as bonds were rallying” in the face of “another batch of hawkish US data,” highlighting that “AI growth concerns continued to outweigh the inflation impulse when it came to yields.” The bank pointed to “a huge upside surprise in PPI inflation, with headline inflation up +1.3% in September (vs. +0.6% expected),” yet real yields still declined. That move extended a backdrop of falling U.S. real rates and easing breakevens that has been supportive for gold.

Warsh Balances Growth Optimism and AI Risks Without Policy Pre-Commitment

Fed Chair Warsh delivered a message that was constructive yet cautious. His remarks earned a 5.6/10 FXS Speechtracker score, below the 6.1/10 historical average, signaling slightly weaker conviction relative to prior communication. He acknowledged being “over-scarred from the global financial crisis,” highlighting a continued bias toward risk management even as he pointed to a structural upswing in growth and investment underpinned by “good policies.” Warsh also described the upcoming October and December meetings as the “crystallizing moment” for assessing trends in output, employment, and inflation.

He placed particular emphasis on artificial intelligence as a near-term driver of demand with unclear repercussions for employment, and reiterated his reluctance to pre-judge policy decisions. That stance left the Fed appearing open to additional tightening if warranted by data, but unwilling to lock in a specific trajectory. The communication backdrop was seen as mildly supportive for the U.S. Dollar via higher-for-longer expectations, moderated by a focus on risk management.

The FXS Fed Sentiment Index was unchanged following the speech, staying at 127.51 with a 0.00-point move and remaining firmly in hawkish territory, despite the somewhat softer FXS Speechtracker reading versus its historical norm. The static yet elevated index level suggested markets interpreted Warsh’s stress on price stability, investment-driven structural growth, and AI-related demand as aligned with a still-hawkish reaction function, even if his delivery appeared slightly less assertive.

Technical Picture: Gold Constrained Below the 100-Day SMA

On the daily chart, XAU/USD continued to trade below a thick band of resistance that keeps the near-term backdrop tilted bearish. Spot prices remained under both the 20-period Bollinger simple moving average and the 100-day simple moving average, indicating that rallies are vulnerable while the market stays beneath these reference points. The upper Bollinger band marked a more distant overhead barrier, while a subdued Relative Strength Index at 45.92 pointed to limited upside momentum rather than oversold conditions.

On the downside, initial technical support aligned with the lower Bollinger band near $4,053.65, an area where volatility-based demand could appear if selling pressure resumes. On the topside, a daily close above the mid-Bollinger band at $4,185 would be an initial sign of stabilization, although sellers would likely defend the 100-day SMA at $4,240 ahead of the upper Bollinger boundary at $4,315.