Hawkish Fed outlook accompanies gold’s decline ahead of US PCE inflation

• Gold falls as further Fed tightening remains on the table.
• US PCE inflation data come into focus, with traders weighing the prospects of a December rate rise.
• XAU/USD stays close to the lower Bollinger Band, with RSI and MACD signalling an advantage for sellers.

With US interest rates left unchanged at the October meeting, the Federal Reserve’s (Fed) latest policy announcement keeps a December increase firmly in contention, weighing on Gold (XAU/USD) on Thursday. Attention now shifts to US Personal Consumption Expenditures (PCE) inflation figures for further indications of the policy path. XAU/USD stands at around $4,030 at the time of writing, a daily decline of 0.88%.

A 10-2 vote by the Federal Open Market Committee (FOMC) on Wednesday kept rates at 3.75%-4.00%, with Governor Lisa Cook and Cleveland Fed President Beth Hammack preferring a 25-basis-point rise. Despite growing evidence of inflationary pressure, the Committee opted to pause. Markets initially interpreted the decision as mildly dovish: Gold advanced, while the US Dollar and shorter-dated Treasury yields fell.

The broader tone, however, was still hawkish. Reaffirming his commitment to achieving price stability, Chair Kevin Warsh said that “while overall financial conditions are tighter, I’m unwilling and unable to call them tight.” He also emphasised that the fight against inflation did not hinge on a specific date or an individual economic release.

Although policy was held steady, Rabobank analysts note that the Committee “indicated a need for more information to help determine the appropriate policy stance.” The Fed’s data-dependent approach was reinforced by Chair Warsh’s observation that the “FOMC will receive a lot more data in the weeks through the next meeting,” underscoring the role of incoming figures in shaping its response.

In the assessment of Rabobank’s US strategist, “without providing forward guidance, Warsh essentially made the case for a rate hike in December,” implying that further tightening remains very much an option.

According to the CME FedWatch Tool, market pricing currently assigns around an 80% probability to a December rate increase. Due at 12:30 GMT, the Fed’s preferred inflation measure will test those expectations, with the advance estimate of third-quarter Gross Domestic Product (GDP) released at the same time.

After falling the previous day, the US Dollar Index (DXY) remains firmly above 102.00 as markets await the figures. The index measures the Greenback against a basket of six major currencies.

Further interest-rate increases would raise the opportunity cost of owning non-yielding Gold, leaving the prospect of additional tightening as a significant headwind. Should PCE exceed expectations, December rate-rise bets could strengthen and weigh further on Gold. Softer data, by contrast, could temper those expectations and leave room for a short-term recovery.

Technical Analysis: XAU/USD remains supported above the lower Bollinger Band

A bearish near-term bias persists on the daily chart, where XAU/USD trades beneath the 20-day Simple Moving Average (SMA) at $4,113, also the middle Bollinger Band. At around 38, the Relative Strength Index (RSI) indicates subdued buying momentum but has not entered oversold territory. Sellers also retain the advantage indicated by the Moving Average Convergence Divergence (MACD), which is still marginally negative.

Any recovery would first face the 20-day SMA around $4,113, with the upper Bollinger Band at $4,229 providing the next resistance. Holding above both levels could clear a path towards $4,400.

Further losses are likely to be contained by the lower Bollinger Band around $3,998 and the former support area near $4,000-$3,950. A clear break beneath this zone, however, could set off a more pronounced decline.

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