Gold May Face Volatility as Elevated Oil Prices Could Support Fed Rate Hike Bets

On Wednesday, after struggling hard at the key resistance at $4,444 for the last nine hours, gold futures are heading towards a key resistance at the 200 EMA ($4,468.22) on a 1-Hr. chart, raising scepticism over this 09:00 a.m. move, as Benchmark Brent crude rose above $100 a barrel on Wednesday to its highest level since July 24 after a fresh wave of Iran-backed Houthis on Saudi energy facilities and a warning from Tehran that it would wage “economic warfare” against the United States amid escalating tensions over Hormuz.

The United States on Tuesday issued 36 Iran-related sanctions targeting the country’s aviation sector and other companies as part of a broad push to escalate economic pressure on Tehran as the war in the Middle East has moved into a seventh month.

The U.S. Treasury ‌Department said the action was aimed at grounding Iran’s Mahan Air, which was already sanctioned by the U.S. and the European Union, and expanding sanctions to all other Iranian airlines. The sanctions also took aim at covert front companies, cargo handlers, foreign intermediaries and deceptive trans-shipment routes that Washington says Iran relies on to obtain U.S.-origin aircraft and sensitive technology.

The Treasury instructed financial institutions to report any procurement networks supporting Iran’s aviation industry, while designating firms in Turkey, the United Arab Emirates, Malaysia and Kazakhstan that it said had helped Iran’s airlines operate, and Tehran acquire U.S.-origin aircraft and sensitive technology.

Treasury’s Office of Foreign Assets Control also suspended three Iran-related aviation authorizations that allowed overflights and permitted non-U.S. airlines to fly U.S.-origin or U.S.-controlled commercial aircraft into Iran.

Miad Maleki, a former senior Treasury official and fellow at the Foundation for Défense of Democracies, said the suspension would hit air traffic from Dubai, Doha and Istanbul, shutting Tehran’s main gateways to regional trade and finance. OFAC’s action also closes previous carve-outs that allowed transport of safety parts, fuel and emergency repairs, he said.

U.S. Treasury yields have moved higher against this backdrop. The benchmark 10-year U.S. Treasury yield briefly moved above 4.8% on Tuesday, near its highest level since November 2023, increasing the relative attractiveness of bonds and raising borrowing costs for companies and consumers.

Markets are now focused on U.S. inflation figures due later this week, with the consumer price index on Friday expected to provide fresh clues on the Fed’s policy path.

Bets on a rate hike at the Fed’s upcoming meeting next week have grown in conjunction with renewed inflation concerns. Markets were pricing roughly a 60% probability of a quarter-basis-point increase, up from about 40% a week ago, according to CME FedWatch.

Technically, I find that the strength shown by the gold futures on Wednesday looks like an attempt to trap bulls, as the elevated oil prices could trigger selling any moment now.
On a daily chart, despite opening the day at $4,393.31, tested the day, high at $2,278.77, and the day’s low at $4,384.86, gold futures are trading at $4,456.90, after facing significant resistance at the 9 EMA ($4,467), trying to defend the psychological support at $4,444, where a breakdown could push the futures to test the next support at the 100 EMA ($4,375.54).
On a 1-Hr. chart, gold futures are consistently struggling at the 100 EMA ($4,467) while the 200 EMA is also at the same level, proving a surge above these significant resistance levels.