16.10.202613:29 Forex Analysis & Reviews: XAU/USD. Price Analysis. Forecast. Gold Holds Up as the Dollar Weakens

On Friday, amid a broader retreat in the US dollar index (DXY), gold (XAU/USD) tried to extend its recovery and drew investor attention. Nevertheless, the metal's price action remains contained within the sideways trend that has formed during October.

The US dollar index (DXY), a barometer of the greenback's strength versus a basket of major currencies, weakened.

That decline followed remarks by Federal Reserve chair Kevin Warsh at the IMF–World Bank meetings, which had little effect on market expectations for future monetary policy. In his discussion with IMF managing director Kristalina Georgieva, Warsh stressed the Fed's unwavering commitment to price stability while noting that it is premature to conclude future policy before actual meetings take place. This, combined with the recent sharp drop in US Treasury yields, has put downward pressure on the dollar and, as a result, created a more favorable environment for gold investment.

However, accelerating inflation in the US — fueled by higher energy prices — keeps alive the possibility of additional Fed rate hikes before year-end. According to US Bureau of Labor Statistics data published on Wednesday, consumer prices broadly rose in September, partly driven by sustained high oil prices amid an escalation in the Middle East involving the US, Israel and Iran.

Moreover, the US Producer Price Index (PPI), published on Thursday, showed a 1.3% increase for the past month — the largest monthly rise since March 2022 — and the year-on-year rate jumped to 6.3%. Excluding the volatile food and energy categories, core PPI rose 0.7% month-on-month and 5.0% year-on-year. These figures indicate that inflationary pressure is spreading beyond the energy sector, creating conditions for further monetary tightening by the Fed. According to CME Group's FedWatch tool, traders now price in a greater than 90% chance of a Fed rate hike at the December meeting.

This factor, combined with rising geopolitical tensions in the Middle East, restrains the dollar's decline and limits gold's upside potential. Among recent events, Houthi forces backed by Iran struck the presidential palace in Aden — where the internationally recognized Yemeni government supported by Saudi Arabia is based. In addition, French Foreign Minister Pascal Confavreux confirmed the deployment of French forces to Saudi Arabia. Against this backdrop, US military planners are developing strike plans — including the possible use of large, non-nuclear munitions — against Iranian energy and nuclear infrastructure. All these developments raise the risk of further escalation in the Middle East, which may continue to support the US dollar and weigh on commodity prices.

From a technical perspective, gold is still unable to break above the 20-day SMA and therefore remains under pressure. Oscillators are negative, giving the bears the advantage.

The table below shows the US dollar's percentage change against major world currencies as of today. The US dollar's largest gain was recorded against the Japanese yen.