FX.co ★ MMC | XAU/USD, GOLD

The yellow metal (XAU/USD) fails to capitalise on its recent bounce from below the psychologically important $4,000 level or the three-month lows set earlier today, Friday. It remains bearish through the first part of the European session. Fed officials have indicated there is no hurry to hike interest rates. Nonetheless, traders are pricing in about an 80% chance that the US central bank will hike interest rates again at its next monetary policy meeting in December. Inflationary worries driven by oil prices justify future Fed rate hikes, which is likely to weigh on gold's upside. Indeed, crude oil prices are near their highest level in a month, hitting a high on Tuesday on supply worries amid escalating tensions in the Middle East. The increasing conflict in Saudi Arabia against the Iran-backed Houthis in Yemen has taken a turn for the worse. The Houthis have been using drones and missiles to attack the country's airports and energy installations. Additionally, Iran's Islamic Revolutionary Guard Corps indicated that any US attack would force the country to invade other countries and target US bases for its offensive purposes. That's in addition to reports that the US and Israel have already formulated plans for an aggressive, yet brief military attack against Iran, following the US midterm elections, and adds to the geopolitical risk premium component. Meanwhile, hawkish expectations for the Federal Reserve have allowed the safe-haven USD to rally modestly off its three-week low, further weighing on gold prices. Yet traders may be cautious about taking new positions and will await further clues on the Fed's course of action. Therefore, all eyes will be on next week's crucial two-day FOMC meeting. The Fed is expected to keep interest rates unchanged on Wednesday. Without changes in the economic outlook, market participants will focus on the accompanying policy statement and remarks from Fed Chairman Kevin Warsh at the subsequent press conference. Next Thursday, the release of Advance US Q3 GDP data and the US PCE Price Index, the Fed's favourite inflation indicator, will likely affect USD and further fuel Gold price moves. The sudden drop below the short-term range support level and the close below $4,100 were key reasons bearish players took positions against the XAU/USD pair. In addition, the RSI of 34.34 is slightly above the oversold level, while the MACD of -6.51 remains negative, indicating continued downside pressure despite hints of stability. However, the precious metal shows some strength below $4,000. Meanwhile, any move toward a recovery will likely attract new sellers and stall around the $4,065-$4,070 area, now acting as resistance after its former support role. Next is the $4,100 psychological level, and if it breaks, it could spark a short-covering rally that pushes the pair higher to $4,170 on its way toward $4,200. Breaking it will lend credence to the potential recovery move.