Gold Falls Below $4,320 as Oil Surge Revives Fed Rate Hike Fears – Comments from Century Financial

The yield on the 10-year Treasury jumped to its 2007 level of 5.20% on late Wednesday. These high yields slow the overall economy by making it more expensive to borrow money, while also undercutting prices for stocks and other investments. Yields once again were following the track of oil prices, which have been volatile because of the war uncertainty and when Iran will allow crude oil to flow freely again from the Middle East.

Further, the U.S. economy continues to expand, which also supports yields. On Thursday, a report showed fewer U.S. workers applied for unemployment benefits last week and further strengthened expectations for the economy. Such numbers could convince the Fed that the economy can withstand more hikes after the one they did in September.  Traders now see more than 50% chance that the Fed could raise rates twice more by the end of the year, according to data from CME Group.

So far, the solid overall economy has helped U.S. companies continue to deliver strong growth in profits. That, in turn, has helped their stock prices remain relatively strong despite worries about war, inflation, and tariffs. As long as AI-related investment, US corporate profitability, and consumer spending continue to beat expectations, the economy and markets seem capable of absorbing tighter central banks and higher rates.

From a technical perspective, the index is trading above the 9 and 21 EMA on the daily with RSI ticking up near 61 levels. Further, prices have retested and rebounded from the upper band of the channel after breaking out earlier this week. All this points to a bullish bias on the index for the day. On the 4-hour chart, key support is at the 7,657 level, followed by the 7,617 level. On the upside, the next potential target is at the 7,778 level, which was this week’s high, followed by the all-time high of 7,818.

U.S. Dollar Index
The US Dollar Index is down 0.08% today and is currently at $101.16

From a fundamental standpoint, the 2-year stands more than 100 basis points above the effective federal funds rate of roughly 3.88%, suggesting investors expect further tightening, an extended period of restrictive policy, or greater compensation for uncertainty around the Fed’s path. This means that investors are demanding a much higher yield to hold a 2-year Treasury than the rate the Fed is currently charging in the overnight market. This is already hawkish, as a substantial portion of the Fed’s expected hiking cycle is already reflected in front-end valuations, so yields have more room to fall than to rise. This would, in turn, mean there is more room for the dollar index to fall than to rise. The US Dollar is more correlated with short-term yields than with long-term yields. According to Bloomberg, the US Dollar’s correlation with 2-year Treasuries is 61.8%, while with 10-year Treasuries it’s just 27.6%.

From a technical standpoint, on the daily timeframe, the dollar index reversed from the trendline resistance at $101.40 that we mentioned yesterday. This supports a bearish stance today, targeting $100.75. On the 4-hour chart, the index hit an overbought level and has begun reversing.

Crude Oil
Crude oil prices fell on Friday after a volatile week as investors reacted to signs of possible diplomatic progress between the US and Iran. Brent fell 1.57% to around $103.46/bbl, while WTI dropped 1.70% to $96.73/bbl, after strong gains in the previous session.

The main focus is on reports that the US and Iran are discussing a phased agreement that could help reopen the Strait of Hormuz and ease restrictions on Iranian ports. If this happens, concerns about supply disruptions could ease, and more oil could reach the global market. However, the downside remains limited as geopolitical tensions remain high. Houthi attacks and the risk of a wider regional conflict continue to raise concerns about oil supplies and shipping routes.

Despite Friday’s drop, Brent remains above $100, showing that geopolitical risks are still supporting oil prices. Broader markets are also showing more caution, with higher yields and weaker risk sentiment that could reduce expectations for oil demand, but supply and geopolitical risks remain the key drivers. Oil prices are likely to remain volatile, with the direction largely dependent on US-Iran negotiations and developments in regional security.

On the 4-Hour chart, Brent rebounded strongly from $98.8 but failed to sustain the break above $105. Immediate support is at $102.6 , followed by $100.60, while resistance remains at $105.3. A break above $105.3 would target $106.6. WTI is consolidating at $96.62 after failing to sustain gains above $98.6. This now acts as immediate resistance, while support appears near the previous day’s lows at  $95.05.

Gold & Silver
Precious metals were again slightly weaker in Thursday’s session, with gold closing 0.32% lower and silver closing 0.92% lower. Both metals are trading relatively flat during the Asian session on Friday.

Gold remains under pressure amid a strong recovery in the US dollar, which is now touching three-month highs on a hawkish Fed outlook and a global bond market sell-off, with 10-year and 30-year US Treasury yields touching 5.2% and 5.5% key levels this week, driven mainly by surging oil prices and inflation fears. Energy costs and expectations of more Fed rate hikes have primarily dictated gold’s trajectory in recent weeks, with higher borrowing costs typically weighing on bullion. This is evident as gold has traded in a relatively narrow range either side of $4,300 an ounce in September as traders repeatedly recalibrate the outlook for Fed policy. Despite near-term headwinds, many investors still bet it will grind higher as it rediscovers its traditional value as a portfolio hedge, with ETF demand remaining strong.