Can Gold Stay Above $4,000 as USD Bulls Await the FOMC Decision?

Gold finds it difficult to extend overnight gains, with the USD holding firm for a third consecutive day.
The USD remains supported by expectations of a Fed rate hike, recovering US bond yields and geopolitical uncertainty.
With traders awaiting the key FOMC decision, scope for further losses in XAU/USD appears limited.

Renewed selling pressure weighs on Gold (XAU/USD) in Tuesday’s Asian session as a stronger US Dollar (USD) interrupts the previous day’s modest recovery from near a three-month low. Nevertheless, the precious metal holds the psychological $4,000 level. Traders appear reluctant to take fresh positions before Wednesday’s outcome of the two-day FOMC policy meeting.

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

Despite recent indications from Federal Reserve (Fed) officials that interest rate increases are not urgent, traders continue to assign a probability of over 80% to another rise in borrowing costs at the US central bank’s December policy meeting. High energy prices are also fuelling inflation concerns, reinforcing expectations of additional Fed tightening. With no updated economic projections due, attention will centre on the accompanying policy statement and remarks by Fed Chair Kevin Warsh at the post-meeting press conference.

Markets will also scrutinise the Advance US Q3 GDP release and the Personal Consumption Expenditures (PCE) Price Index for further indications of the Fed’s policy direction. That outlook will be an important driver of US Dollar (USD) movements and could give non-yielding Gold a meaningful impetus. Ahead of these major central bank and data events, the safe-haven dollar is drawing support from Middle East concerns and a modest rebound in US bond yields after their recent fall to a three-week low.

Stalled US-Iran negotiations and fresh attacks on Saudi Arabia by Iran-aligned Houthis are keeping the geopolitical risk premium in place. On Monday, the Houthis said they had targeted Saudi Arabia’s East-West crude oil pumping stations and Riyadh airport. Meanwhile, reports that Lebanese armed group Hezbollah is preparing for a possible renewal of hostilities with Israel have further weakened hopes of an immediate return to stability in the region. These developments favour USD bulls and indicate that gold’s path of least resistance is still lower.

What does the XAU/USD 4-hour chart indicate?

Can Gold Reverse Its Near-Term Bearish Bias?

After recently breaking below a short-term trading range, the metal retains a bearish near-term outlook. On the 4-hour chart, it remains well beneath the 200-period Simple Moving Average (SMA) at $4,198.08, the main barrier to an advance. Momentum signals, however, have improved slightly: the Moving Average Convergence Divergence (MACD) line is rising above zero, while the Relative Strength Index (RSI) has rebounded from oversold levels towards the mid-30s. These changes suggest a corrective recovery rather than a decisive trend reversal.

For the case for further declines to gain support, prices would need to establish themselves below $4,000. Any advance would first encounter resistance near $4,065-$4,075, where the earlier trading range broke down, followed by $4,100. Beyond that level, XAU/USD could seek to test the 200-period SMA and regain the round figure of $4,200. A sustained move above this hurdle would weaken the current downside bias and create room for a more substantial recovery.

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

Fed: Frequently Asked Questions

How does the Federal Reserve’s role influence the US Dollar?

The Federal Reserve (Fed) sets US monetary policy with a dual mandate of maintaining price stability and promoting full employment. Adjustments to interest rates are its main means of pursuing these objectives. If prices climb too rapidly and inflation exceeds the Fed’s 2% target, the central bank increases interest rates. Higher borrowing costs across the economy make the US a more appealing destination for international investors’ funds, strengthening the US Dollar (USD). Conversely, inflation below 2% or an excessively high unemployment rate may prompt the Fed to cut interest rates to stimulate borrowing. Such a move puts pressure on the Greenback.

What is the Fed’s schedule for monetary policy meetings?

At eight meetings each year, the Federal Open Market Committee (FOMC) reviews the state of the economy and decides on monetary policy for the Federal Reserve (Fed). Twelve Fed officials attend the FOMC: all seven members of the Board of Governors, the president of the Federal Reserve Bank of New York and four presidents drawn from the other eleven regional Reserve Banks. The latter four serve rotating one-year terms.

How does Quantitative Easing (QE) work, and what does it mean for USD?

When conditions become extreme, the Federal Reserve may turn to Quantitative Easing (QE) to substantially expand the supply of credit in a financial system that is no longer functioning smoothly. This unconventional policy is used in crises or periods of exceptionally low inflation. During the Great Financial Crisis in 2008, it was the Fed’s preferred response. Under QE, the Fed prints additional Dollars to purchase high-grade bonds from financial institutions, a process that generally weakens the US Dollar.

How does Quantitative Tightening (QT) work, and why does it affect the US Dollar?

Reversing QE, Quantitative Tightening (QT) involves the Federal Reserve halting bond purchases from financial institutions. It also refrains from reinvesting the principal received as its bond holdings mature into new bonds. This process generally supports the US Dollar’s value.