XAU/USD Technical Analysis: Gold Holds Steady Amid US Dollar Weakness

On Friday, gold (XAU/USD) attempted to extend its recovery amid a broader retreat in the US dollar index (DXY). Despite drawing investor attention, the metal's price action remains firmly contained within the sideways trading range established throughout October.

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The decline in the US dollar followed remarks by Federal Reserve Chair Kevin Warsh at the IMF-World Bank meetings. Warsh emphasized the central bank's commitment to price stability while noting it is premature to finalize future policy decisions before upcoming meetings. This commentary, paired with a sharp drop in US Treasury yields, exerted downward pressure on the greenback and created a supportive environment for gold.

However, accelerating domestic inflation driven by higher energy prices sustains expectations for additional Federal Reserve rate hikes. Data from the US Bureau of Labor Statistics showed that consumer prices rose broadly in September. This upward trend is partly linked to sustained high oil prices resulting from escalating geopolitical tensions involving the US, Israel, and Iran.

Furthermore, the US Producer Price Index (PPI) surged by 1.3% in September, marking the largest monthly increase since March 2022, while the annual rate climbed to 6.3%. Core PPI also advanced by 0.7% month-on-month and 5.0% year-on-year, signaling that inflationary pressures are broadening beyond the energy sector. Consequently, CME Group's FedWatch tool indicates that traders are currently pricing in over a 90% probability of a rate hike at the December FOMC meeting.

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Geopolitical risks in the Middle East continue to influence currency and commodity markets. Recent developments include strikes by Iranian-backed Houthi forces in Aden and the deployment of French forces to Saudi Arabia. Meanwhile, US military planners are reportedly developing contingency strike plans against Iranian infrastructure, elevating regional risks that could periodically bolster safe-haven demand for the US dollar.

From a technical standpoint, gold struggles to break above the 20-day simple moving average (SMA), keeping the metal under persistent selling pressure. Current oscillator readings remain in negative territory, maintaining a near-term technical advantage for bearish market participants.

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