Gold rangebound as easing October Fed bets clash with firm December hike pricing

Gold experienced a rangebound situation in early October, as market expectations for Fed policy tightening softened, while inflation fears remained elevated. Fed Chair Kevin Warsh's reluctance to provide guidance on future policy actions contributed to reduced odds of rate hikes for later in the month. US government bond yields experienced a sharp decline from multi-year highs, benefitting the greenback and benefiting gold.

Deutsche Bank's strategists noted that the Fed entering its blackout period before the October meeting led to a decline in "October hike pricing" to around 15%, down from 30% earlier in the week. Markets interpreted the absence of a more hawkish tone as a positive surprise. The absence of additional hawkishness from the Fed also provided support for bullish sentiment in equities, as seen in S&P and Nasdaq futures.

Inflation data released last week contributed to increased expectations of a potential Fed rate hike in December, with CME Group's FedWatch Tool pricing the probability at over 90%. Geopolitical tensions, particularly in the Middle East and Ukraine, continued to support crude oil prices, which surged to a near one-month high following Middle East conflicts and the closure of the Strait of Hormuz.

The range-bound price action for gold was seen as a consolidation phase, and the XAU/USD pair remained below the 200-period Simple Moving Average, indicating a corrective phase rather than a confirmed uptrend. A break above the $4,200 mark and moving beyond the $4,215-$4,220 range could help alleviate downside pressure and signal a more constructive medium-term outlook for gold.