Spot gold (XAU/USD) showed some resilience below the psychological level of $4,000, rebounding from a three-month low hit earlier on Friday. However, gold lacked follow-through buying and remained weak as the European session began. Spot gold is currently trading around $4,010 per ounce.

Interest rate hike expectations and a stronger dollar are putting downward pressure on gold prices.

Gold showed some resilience below the psychological level of $4,000, rebounding from a three-month low hit earlier on Friday. However, lacking follow-through buying, gold remained under pressure heading into the European session. While recent signals from Federal Reserve officials that there is no urgency to raise interest rates persist, traders still price in an approximately 80% probability of another rate hike at the December policy meeting. Meanwhile, oil-driven inflation concerns support the prospect of further Fed tightening, limiting the upside potential of gold, a non-interest-bearing asset. In fact, oil prices are nearing a one-month high reached on Tuesday, influenced by supply concerns stemming from escalating conflict in the Middle East. Fighting between Saudi Arabia and the Iranian-backed Houthi rebels in Yemen has escalated sharply, with the Houthis launching drone and missile attacks on Saudi airports and key energy infrastructure. Further developments include statements from Iran's Islamic Revolutionary Guard Corps (IRGC) suggesting that a renewed US attack could prompt Tehran to invade neighboring countries and strike bases used by US forces as part of a new offensive strategy. Additionally, reports that the US and Israel have formulated plans for a short but intense military operation against Iran following the US midterm elections continue to carry a geopolitical risk premium. Meanwhile, hawkish Fed expectations helped the safe-haven dollar rebound slightly from a three-week low, putting additional downward pressure on gold prices.

Market focus shifts to next week's FOMC meeting

Traders may avoid establishing new directional positions, opting instead to await further clues about the Fed's policy path. Therefore, focus will be on next week's highly anticipated two-day FOMC meeting. The Fed will announce its decision on Wednesday, with the market widely expecting it to keep interest rates unchanged. Without updated economic projections, investors will scrutinize the accompanying policy statement and Fed Chairman Kevin Warsh's remarks at the post-meeting press conference. Following this, next Thursday will see the release of the preliminary US Q3 GDP figures and the US Personal Consumption Expenditures (PCE) price index—the Fed's preferred inflation indicator—which will play a crucial role in influencing the dollar and providing new momentum for gold prices.

Market impact

Gold prices have been under pressure near three-month lows recently, with spot gold briefly falling below $4,000 per ounce. This week's cumulative decline exceeds 3%, marking its worst weekly performance in months. The main suppressive factor is the significantly increased expectation of a December rate hike by the Federal Reserve, with the market pricing in a probability of around 80%. This, coupled with a slight rebound in the US dollar, has raised the opportunity cost of holding gold, a non-interest-bearing asset. Meanwhile, oil prices have surged to a five-month high due to Middle East geopolitical risks (such as the Houthi attacks), further exacerbating inflation concerns and reinforcing expectations that the Fed will maintain its tightening policy or even raise interest rates further. While Middle East tensions traditionally benefit gold's safe-haven appeal, they are currently supporting the safe-haven dollar, thus limiting the upside potential for gold prices. In the short term, gold price direction is highly dependent on next week's FOMC meeting statement, Chairman Warsh's remarks, and the upcoming US GDP and core PCE inflation data. If the data reinforces a "higher and longer" interest rate path, gold prices may face further testing of key support levels. (Spot gold daily chart, source: EasyTrade) At 15:16 Beijing time, spot gold was trading at $4015.25 per ounce.