Gold flatlines below $4,150 as traders assess Fed rate path amid Middle East risk

Gold prices remained relatively stable near $4,125 early Thursday, as market participants analyzed the Federal Reserve's likely interest-rate path and the ongoing Middle East tensions. Fed Chair Kevin Warsh refrained from specifying the outcome of the upcoming policy meeting, yet indicated that rising inflation had not altered his perspective on the US economy.

According to the CME FedWatch tool, the probability of no rate change at the October meeting now sits at 84%, but markets still anticipate an increase at the December meeting, keeping the overall policy trajectory tightening. This situation could negatively impact gold, as higher interest rates generally make non-yielding assets, including gold, less appealing.

Furthermore, increased energy costs may prompt the Federal Reserve to take further action to address inflation.

Iran's Foreign Minister Abbas Araghchi expressed Iran's readiness to defend itself if necessary, while President Masoud Pezeshkian stated that the US cannot expect dialogue with Iran while imposing sanctions and threats. These geopolitical uncertainties have kept traders on high alert. Commerzbank analysts noted a stark contrast in market sentiment, with European equities falling due to political unrest in France, while US Treasury yields rose as equity recovery diminished safe-haven demand.

The US dollar exhibited slight strength, reflecting a gradual realignment toward the Dollar as risk sentiment stabilized in US assets.

Commerzbank also highlighted softer commodity prices, reporting a 0.3% dip in Brent crude oil to $109.55 and a 0.6% drop in gold to $4,141, illustrating how rising US yields and diminished safe-haven demand have undermined traditional hedges. Fed Chair Warsh's speech conveyed a moderately constructive tone, with an FXS Speechtracker score of 5.6/10, slightly lower than the historical average of 6.1/10, indicating modest incremental information for the markets.

His acknowledgment of being "over-scarred" by the Global Financial Crisis highlighted his ongoing caution regarding financial stability. Warsh emphasized structural growth, investment surges, and confidence in maintaining price stability without committing to specific decisions regarding October or December meetings. His focus on artificial intelligence as a demand-side catalyst and a tool to enhance data and monetary policy reflects a forward-looking approach that could bolster the US dollar if productivity and growth expectations improve.

The FXS Fed Sentiment Index remained unchanged at 127.51, indicating a hawkish stance despite the speech's slightly lower score. This neutral day-on-day change suggests that markets still view the Fed as firmly in hawkish territory, with Warsh's cautious crisis scars tempered by optimism regarding investment and AI-driven growth.

XAU/USD remained under pressure, trading below the 20-period Bollinger simple moving average and the 100-day moving average, signaling a bearish near-term bias. Price was still above the lower Bollinger Band, suggesting a short-term consolidation rather than a full breakdown. The Relative Strength Index at 42.60 was in neutral-to-soft territory, indicating that downside momentum was present but not extreme.

The immediate support level was the lower Bollinger Band around $4,070, and a sustained break below this floor could trigger a deeper pullback. If bulls attempted a rebound, resistance would initially be found at the Bollinger midline near $4,160, followed by the 100-day moving average at $4,230 and the upper Bollinger Band at $4,255 as a stronger barrier.