$4,000 area: Gold struggles as US Dollar gains ahead of Fed decision

The US Dollar’s continued recovery keeps Gold under pressure before the Fed’s policy decision.
With the Fed expected to leave rates unchanged, traders await signals on a potential December increase.
Momentum indicators point to sellers retaining the advantage as the technical outlook stays weak.

$4,000 remains the focal level for Gold (XAU/USD) on Tuesday. After a modest advance at the start of the week, the metal is fluctuating near that mark. A continuing rebound in the US Dollar (USD) from recent weakness is weighing on Gold as traders adjust positions before Wednesday’s Federal Reserve (Fed) monetary policy announcement. XAU/USD is trading around $4,012 at the time of writing, above the three-month low of $3,975 recorded last week.

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

A two-week high above 102.00 has been reached by the US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies. The advance follows last week’s drop to 101.45, its weakest reading since 1 October. For buyers holding other currencies, a firmer US Dollar raises the cost of Gold.

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

Stabilising sentiment towards AI has helped the Dollar, according to strategists at ING, who say it has “found good support early this week,” as markets have been able to “reconnect with the broader supportive backdrop of a hawkish Federal Reserve and high energy prices.” The strategists also suggest that “pre-FOMC positioning may also be kicking in,” as forward-looking FX markets interpret Chair Kevin Warsh’s “reiteration of inflation commitments as reinforcing the structural floor for the Dollar.” Consistent with its earlier preview, ING says its strategists “sympathise with this view and expect a broadly supported Dollar this week.”

An unchanged rate decision is expected from the US central bank following September’s 25 basis points (bps) increase to 3.75%-4.00%. That move, the first rise since 2023, came as higher energy costs associated with the Middle East war intensified inflationary pressures.

Attention will centre on the policy statement and Chair Kevin Warsh’s press conference for indications of the next step, given broad expectations of a pause. The updated September dot plot put the median rate forecast at 4.1% for both end-2026 and end-2027. This implied 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 increase in December.

Gold could face a sustained move below $4,000 if the Fed delivers a hawkish message. Conversely, the metal could gain some respite if policymakers stress the need for time to evaluate incoming data. A more substantial rebound may nevertheless prove difficult: inflation is still above the Fed’s 2% target, while high energy costs risk prolonging price pressures. Although Gold is widely regarded as an inflation hedge, rising interest rates make holding the non-yielding metal more costly in opportunity-cost terms.

Around $101.50 per barrel is the current trading level for West Texas Intermediate (WTI) Crude Oil, with traders balancing diplomatic initiatives against supply risks. Talks took place in Tehran on Monday between Iranian officials and representatives of Saudi Arabia, Turkey and Pakistan. All four countries agreed to maintain discussions. Supply concerns persist, however, amid threats to shipping security in the Strait of Hormuz and Houthi attacks on Saudi Arabia.

$4,000-$3,950 support zone: sellers retain technical control

Trading below its 50-day, 100-day and 200-day Simple Moving Averages (SMAs), XAU/USD retains a bearish near-term outlook on the daily chart. Sellers remain in command. A Relative Strength Index (RSI) reading of 35 signals subdued buying momentum, while the Moving Average Convergence Divergence (MACD) stays below zero, indicating continuing downside pressure.

The first upside barrier is the 100-day SMA near $4,219; the next is the 50-day SMA at $4,288. Should the recovery gather strength, horizontal resistance at $4,400 could come into view, followed by the 200-day SMA around $4,504.

Immediate downside support lies in the $4,000-$3,950 area. A breach would allow a deeper retracement. Rebounds are likely to face difficulty while the price remains below the cluster of daily moving averages.

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

Fed policy: frequently asked questions

The Federal Reserve’s role and its influence on the US Dollar

The Federal Reserve (Fed) sets US monetary policy with a dual mandate: maintaining price stability and promoting full employment. Adjustments to interest rates are its main means of meeting those objectives. If prices climb too rapidly and inflation exceeds the Fed’s 2% target, the central bank increases rates. Borrowing becomes more expensive across the economy, while the US becomes a more attractive destination for international investment, strengthening the US Dollar (USD). By contrast, inflation below 2% or an excessively high Unemployment Rate may prompt the Fed to cut rates to stimulate borrowing. Such a move weighs on the Greenback.

Eight meetings a year: the Fed’s policy schedule

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

Quantitative Easing (QE): the process and its effect on USD

When conditions become extreme, the Federal Reserve may turn to Quantitative Easing (QE) to expand credit flows substantially through a stalled financial system. This unconventional measure is used during crises or periods of exceptionally low inflation. The Fed favoured it during the Great Financial Crisis in 2008. Under QE, the Fed prints additional Dollars to purchase high-grade bonds from financial institutions. The US Dollar usually weakens as a result.

Quantitative Tightening (QT): the process and its effect on the US Dollar

To reverse QE through Quantitative Tightening (QT), the Federal Reserve ceases bond purchases from financial institutions. It also refrains from reinvesting principal repaid on maturing bond holdings in new bonds. This process generally supports the US Dollar’s value.