Gold gains ground above $4,150 as Fed avoids policy signals, geopolitical risks stay in focus

Gold prices climbed above $4,150 on Monday as the Federal Reserve avoided providing any policy signals. Traders kept a keen eye on geopolitical risks, particularly tensions in the Middle East. Despite a higher-than-anticipated US inflation report, market expectations had shifted. Fed Chair Kevin Warsh expressed optimism about the US economy's strength but refrained from giving any hints about the Federal Reserve's future rate path.

Warsh noted that the October and December policy meetings would be crucial in determining economic output, employment, and inflation. He also mentioned that AI growth concerns were overshadowing inflation expectations when it came to yields. The market anticipated a 91.8% probability of a rate hike in December, according to the CME's FedWatch Tool.

Meanwhile, US President Donald Trump signed a diesel export agreement with Russia and avoided several sanctions to prevent Vladimir Putin from distancing himself from peace talks with Ukraine. An Iranian official warned that Tehran had prepared a new retaliation plan in case of renewed US-Israeli aggression, following several attacks on commercial vessels near the Strait of Hormuz.

Ongoing conflicts between Russia and Ukraine, as well as tensions in the Middle East, could drive oil inflation concerns and negatively impact the yellow metal. Deutsche Bank's Early Morning Reid report highlighted a global rate rally, with lower yields across various bond markets. The US 2-year yield dropped to 4.74%, and the 10-year yield fell to 5.06%.

Deutsche Bank attributed this trend to falling yields despite strong bond performance in the face of "hawkish US data." Fed Chair Warsh delivered a cautiously optimistic message, signaling a reserved approach to future rate hikes. The central banker's remarks, marked by a 5.6/10 FXS Speechtracker score, were slightly below the 6.1/10 historical average.

Analysts noted that Warsh's admission of being "over-scarred from the global financial crisis" reflected a persistent risk-averse bias, even as he emphasized a surge in structural growth and investment. The Fed Chair's focus on AI as a near-term demand-side force with uncertain employment effects and his reluctance to make pre-judgments about upcoming meetings suggested a balanced stance that could support dollar stability while remaining cautious.

Gold remained below key resistance levels, and traders watched closely for a break above the mid-Bollinger band at $4,185. A rally above this level could provide short-term support, while a close below the lower Bollinger band at $4,053.65 might trigger further decline.