Gold holds above $4,000 as USD bulls await FOMC decision

Gold struggles to build on the overnight gains as the USD stands firm for the third straight day.
Fed hike bets, rebounding US bond yields and geopolitical risks continue to underpin the USD.
The downside for the XAU/USD pair seems limited as traders await the crucial FOMC decision.

Gold (XAU/USD) meets with a fresh supply during the Asian session on Tuesday, stalling the previous day's modest bounce from the vicinity of a three-month low amid a firmer US Dollar (USD). The precious metal, however, defends the $4,000 psychological mark as traders now seem hesitant and opt to wait for the outcome of the two-day FOMC policy meeting on Wednesday.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Federal Reserve (Fed) officials recently signaled that there is no urgency to raise interest rates. Traders, however, are still pricing in over an 80% chance that the US central bank will raise borrowing costs again at the December policy meeting. Moreover, inflation fears stemming from elevated energy prices underpin prospects for further Fed tightening. Hence, the focus will remain glued to the accompanying policy statement and Fed Chair Kevin Warsh's comments during the post-meeting press conference in the absence of updated economic projections.

Apart from this, the release of the Advance US Q3 GDP and the Personal Consumption Expenditures (PCE) Price Index will be looked upon for more cues about the Fed's future policy path. The outlook, in turn, will play a key role in influencing the US Dollar (USD) price dynamics and provide some meaningful impetus to the non-yielding Gold. Heading into the key central bank event and data risks, a modest recovery in US bond yields, following the recent decline to a three-week low, along with Middle East jitters, underpins the safe-haven buck.

The geopolitical risk premium remains in play amid stalled US-Iran talks and renewed attacks by Iran-aligned Houthis on Saudi Arabia. In fact, Houthis said on Monday they had ‌attacked Saudi Arabia's East-West crude oil pumping stations and Riyadh airport. Adding to this, Lebanese armed group Hezbollah is reportedly preparing for a possible resumption of hostilities with Israel, dampening hopes of immediate stability in the region. This, in turn, favors USD bulls and suggests that the path of least resistance for gold remains to the downside.

XAU/USD 4-hour chart

Technical Analysis

The commodity maintains a bearish near-term tone following the recent breakdown through a short-term trading range. Moreover, the precious metal holds well below the 200-period Simple Moving Average (SMA) on the 4-hour chart, at $4,198.08, which acts as the primary cap on the upside. Meanwhile, the Moving Average Convergence Divergence (MACD) indicator shows the line above zero and advancing, and the Relative Strength Index (RSI) has recovered toward the mid-30s from oversold territory. Slight improvement in momentum indicators only hints at a corrective bounce rather than a clear shift in trend.

That said, acceptance below $4,000 is needed to back the case for deeper losses. On the topside, initial resistance is defined by the trading range breakpoint, around the $4,065-$4,075 region. This is followed by the $4,100 mark, above which the XAU/USD pair could aim to test the 200-period SMA and reclaim the $4,200 round figure. A sustained strength above this barrier would ease the prevailing downside bias and open the way for a more meaningful recovery.

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

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.