US Dollar strength keeps Gold under pressure near $4,000 ahead of Fed decision

• Ahead of the Fed’s rate decision, a further recovery in the US Dollar weighs on Gold.
• An unchanged Fed rate is expected, leaving traders watching for signals of a December increase.
• Momentum indicators point to sellers retaining the advantage within a weak technical outlook.

The $4,000 level remains in focus for Gold (XAU/USD) on Tuesday, with prices fluctuating nearby following modest gains at the beginning of the week. Having recently weakened, the US Dollar (USD) is extending its recovery as traders adjust positions before Wednesday’s Federal Reserve (Fed) monetary policy announcement, leaving the metal struggling for traction. XAU/USD stands at around $4,012 at the time of writing, above the three-month low of $3,975 recorded last week.

Having reached 101.45 last week, its weakest reading since 1 October, the US Dollar Index (DXY) has climbed above 102.00 to a two-week high. The index measures the Greenback against a basket of six major currencies. Dollar strength raises the cost of Gold for buyers paying in other currencies.

Dollar gains support as Fed policy and energy prices return to focus

According to ING strategists, the Dollar has “found good support early this week,” with steadier AI-related sentiment enabling markets to “reconnect with the broader supportive backdrop of a hawkish Federal Reserve and high energy prices.” They also suggest that “pre-FOMC positioning may also be kicking in,” as the forward-looking FX market interprets Chair Kevin Warsh’s “reiteration of inflation commitments as reinforcing the structural floor for the Dollar.” Consistent with their earlier preview, ING’s strategists say they “sympathise with this view and expect a broadly supported Dollar this week.”

Following September’s 25 basis points (bps) increase to 3.75%-4.00%, the US central bank is expected to leave rates on hold. That rise was its first since 2023 and came as higher energy costs associated with the war in the Middle East intensified inflationary pressures.

With markets widely anticipating a pause, attention will turn to the policy statement and Chair Kevin Warsh’s press conference for indications of the next step. In September’s revised dot plot, the median rate forecast stood at 4.1% for both end-2026 and end-2027. This pointed to another quarter-point increase this year, followed by no net change next year. In this context, the CME FedWatch Tool shows traders assigning around an 80% probability to a further rate rise in December.

Should the Fed deliver a hawkish message, Gold could face a sustained break below $4,000. By contrast, an emphasis on allowing time to evaluate incoming data could provide some respite. A more substantial recovery may nevertheless prove difficult, with inflation still exceeding the Fed’s 2% target and high energy costs threatening to prolong price pressures. Although Gold is commonly regarded as an inflation hedge, rising interest rates increase the opportunity cost of owning the non-yielding metal.

At around $101.50 per barrel, West Texas Intermediate (WTI) Crude Oil reflects traders’ assessment of diplomatic initiatives alongside supply risks. Talks took place in Tehran on Monday between Iranian officials and Saudi Arabia, Turkey and Pakistan, with all four countries agreeing to pursue further discussions. Nonetheless, threats to shipping security in the Strait of Hormuz, together with Houthi attacks on Saudi Arabia, continue to fuel concerns over supply.

Technical analysis: Sellers retain control as $4,000-$3,950 support comes into focus

Trading beneath its 50-day, 100-day and 200-day Simple Moving Averages (SMAs), XAU/USD retains a bearish short-term bias on the daily chart, leaving sellers in control. Buying momentum remains weak, as indicated by a Relative Strength Index (RSI) reading of 35. Meanwhile, the Moving Average Convergence Divergence (MACD) stays below zero, signalling continued downward pressure.

Any advance would first encounter resistance around $4,219 at the 100-day SMA, with the 50-day SMA at $4,288 the next barrier. A more pronounced recovery could put horizontal resistance at $4,400 in view before the 200-day SMA near $4,504.

Immediate support lies in the $4,000-$3,950 area; a break below it would clear the way for a deeper retracement. Recovery efforts, meanwhile, are likely to face difficulty while prices remain below the cluster of daily moving averages.

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