Gold came under strong pressure after the release of September inflation data in the US.
XAU/USD declined for three consecutive trading days and dropped to $4,065, the lowest level in a week.
On the morning of October 15, the metal began to recover and returned above $4,150.
What US inflation showed
Headline CPI for September rose to 3.7% year over year versus the forecast of 3.6% and 3.4% a month earlier.
Month over month, prices added 0.6%.
Core inflation excluding food and energy accelerated to 2.6% versus expectations of 2.5% and 2.4% in August.
The stronger data reinforced expectations of further tightening by the Fed.
Why gold moved lower
Gold does not generate interest income.
Therefore, rising rate expectations typically increase the appeal of bonds and the dollar relative to the metal.
After the CPI release, US Treasury yields moved higher, the dollar strengthened, and XAU/USD came under pressure.
What the market expects from the Fed
The probability of a rate hike at the October meeting already rose to about 31.6% from around 22% before the data release.
For December, the market is pricing in a probability of a hike of about 89.7%.
Expectations of at least one additional hike before the end of the year remain high.
Why gold bounced back
On the morning of October 15, bond yields and the dollar retreated from the highs reached after the CPI release.
Against this backdrop, gold returned above $4,150.
That is, the recovery so far is linked more to easing pressure from the dollar and the bond market than to a change in the overall rate picture.
Where the nearest levels are
The nearest intermediate resistance remains the zone around $4,180, where the 100-period moving average runs.
Above that is the $4,215-4,220 area.
The RSI returned to approximately the neutral 50 mark after falling to 38.7 the previous day.
This shows that short-term oversold conditions have been partially unwound.
What the Fed says
San Francisco Fed President Mary Daly allowed that rates will probably need to be raised further.
At the same time, in her view, it is not necessary to do so at the October meeting.
For the market, this means the question is not only about the direction of rates, but also about the timing of the next move.
What's next
On Thursday, the US producer price index will be released.
On Friday, a new speech by Fed Chair Kevin Warsh is expected.
These events could again shift rate expectations, and with them the movement of the dollar, yields, and gold.
For now, XAU/USD remains especially sensitive to any changes in the trajectory of Fed policy.
Did you catch this squeeze to $4,065?
The move from $4,065 to $4,150 amounted to almost $90 per ounce in a few hours. For a prop trader, not only the scenario itself matters, but also the available trading nominal. In prop trading, the trading account is provided by a third-party company after passing a paid challenge, and profits are distributed according to pre-established conditions. It is better to understand the mechanics in advance, before the next major inflation release.