• Gold pauses its two-day rebound as traders await the Fed’s interest rate decision.
  • The Fed is expected to hold rates steady, with traders looking for clues on a December hike.
  • XAU/USD remains below key daily moving averages, with immediate support at $4,000-$3,950.

Gold (XAU/USD) stalls its rebound on Wednesday as investors await the Federal Reserve’s (Fed) monetary policy announcement, due at 18:00 GMT. A modest pullback in Oil prices helped bullion recover from its lowest levels since July over the past two days. However, renewed gains in Oil prices and a steady US Dollar (USD) are limiting further upside.

At the time of writing, XAU/USD trades around $4,053, down 0.17% on the day. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is little changed around 102.36, near two-week highs.

Oil prices rebound after the Wall Street Journal reported that Washington had warned Gulf states of a possible military operation against Iran after the US midterms. West Texas Intermediate (WTI) trades around $101.40 a barrel, up 1.80% on the day.

Higher energy costs have kept inflation pressures elevated since the Middle East war erupted in late February, prompting major central banks, particularly the Fed, to tighten monetary policy. The US central bank raised interest rates by 25 basis points (bps) in September and signalled another increase before year-end, reaffirming its commitment to returning inflation to its 2% target.

Policymakers are widely expected to keep interest rates unchanged at 3.75%-4.00% at the October meeting, while traders price in an 85% probability of a hike in December, according to the CME FedWatch Tool.

Analysts at ABN Amro argue that recent US economic data give the Fed room to pause for now. They note that, “combined with the recent softer PCE readings, the labour data remove much of the pressure to hike immediately,” allowing policymakers to “afford another six weeks to assess whether the latest inflation strength represents persistent pressure or another temporary bump.”

In their view, “the mix of persistent near-term inflation risk and a cooling labour market argues for patience rather than complacency.” As a result, ABN Amro expects the Fed “to hold in October, deliver one final 25bp hike in December, and then keep rates unchanged for an extended period.”

With a pause largely anticipated, guidance on the policy outlook could trigger a stronger market reaction than the decision itself. If policymakers signal that further rate hikes remain on the table, the US Dollar could strengthen, putting Gold’s $4,000 support level at risk. Higher interest rates increase the opportunity cost of holding the non-yielding metal. Conversely, a less hawkish tone could weigh on the Greenback and give bullion room for a short-term relief rally.

Technical analysis: XAU/USD remains bearish below key daily SMAs

On the daily chart, XAU/USD maintains a bearish near-term bias as it trades below the 50-day, 100-day and 200-day Simple Moving Averages (SMAs), keeping sellers in control. The Relative Strength Index (RSI) at 39 points to weak buying momentum, while the Moving Average Convergence Divergence (MACD) remains in negative territory, suggesting that downside pressure persists.

On the upside, initial resistance stands at the 100-day SMA near $4,218, followed by the 50-day SMA at $4,279. A stronger recovery could bring the horizontal resistance at $4,400 into focus, ahead of the 200-day SMA around $4,500.

On the downside, the $4,000-$3,950 zone offers immediate support. A break would open the door to a deeper retracement, while recovery attempts are likely to struggle as long as price trades below the clustered daily moving averages.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Gold FAQs

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.

I am a macro-focused research analyst with over four years of experience covering forex and commodities market. I enjoy breaking down complex economic trends and turning them into clear, actionable insights that help traders stay ahead of the curve.