Gold (XAU/USD) is attracting selling interest after reaching a weekly high at the beginning of the week. During the European session, the price fell below $4,200, ending a two-day winning streak. The hawkish stance of the US Federal Reserve is limiting the dollar's downward potential, which, in turn, is capping gains in gold prices. Meanwhile, crude oil prices have declined amid hopes for a possible "energy truce" between Russia and Ukraine, which could ease the global fuel shortage and, consequently, reduce inflationary risks. In addition, the recent decline in US Treasury yields from multi-year highs has put pressure on the dollar at the start of the week, thereby supporting the precious metal.

Despite this movement in energy prices, risks of further dollar appreciation remain. Elias Haddad of Brown Brothers Harriman notes that "a modest decline in energy prices has eased the global bond sell-off and slightly slowed the dollar's appreciation." However, he warns that "the US economy's faster growth and strong foreign investor demand for US securities pose risks to further dollar appreciation," concluding that any slowdown in this trend may prove temporary.

Market participants have stopped pricing in the possibility of a rate hike at the Fed's late-October meeting, although expectations for a 25-basis-point increase in December remain unchanged. According to CME Group's FedWatch tool, traders currently assign approximately an 85% probability to the US central bank raising interest rates again before the end of the year. Expectations of further dollar appreciation have also been supported by the minutes of the September FOMC meeting, published last week. The minutes emphasize that the regulator continues to view inflation as the primary threat to macroeconomic stability and remains committed to further monetary policy tightening.

In the Middle East, the Iran-backed Yemeni Houthi movement has intensified its attacks on Saudi Arabia. Over the weekend, King Khalid International Airport in Riyadh was targeted with ballistic and cruise missiles, as well as drones. In response to these deadly attacks, Saudi Arabia pledged to take action, while US President Donald Trump hinted at possible US participation in strikes against the group and a resumption of attacks on Iran. In addition, a senior Iranian security official criticized Washington's response to Tehran's proposal to resume shipping through the strategically important Strait of Hormuz. These developments sustain the risk of a geopolitical risk premium in the market.

To identify better trading opportunities, traders may wait for the release of US inflation data: the Consumer Price Index (CPI) and the Producer Price Index (PPI), scheduled for Wednesday and Thursday, respectively. In addition, a speech by Federal Reserve official Kevin Warsh at the annual meetings of the International Monetary Fund (IMF) and the World Bank in Bangkok on Friday may influence both the US dollar and gold prices.

From a technical perspective, the bulls have so far failed to break above the 20-day simple moving average (SMA), which would help ease bearish pressure. The oscillators are in negative territory, confirming the bears' advantage. Nevertheless, consolidation near the $4,200 level suggests that the bulls are not yet ready to give up.