Can gold sustain its fragile recovery while consolidating near $4,000 ahead of the Fed decision?

Gold moves back above $4,000, supported by softer Oil prices as diplomacy gathers pace in the Middle East.
Wednesday's Fed monetary policy decision remains the focus for traders.
Bearish technical signals persist as the RSI approaches oversold levels and the MACD stays below zero.

Supported by a retreat in Oil prices, Gold (XAU/USD) is holding on to modest gains on Monday as traders assess diplomatic initiatives aimed at easing Middle East tensions. The recovery follows last week's steep sell-off, which took the metal to $3,975, its weakest level since August. XAU/USD is trading near $4,016 at the time of writing, a gain of 0.50% for the day.

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

Officials representing the three Mecca Pact members, Saudi Arabia, Pakistan and Turkey, are meeting Iranian leaders in Tehran on Monday, Reuters reported. According to Iranian Foreign Ministry spokesman Esmaeil Baghaei, the agenda includes Israel's expansionist policies, developments in Lebanon and the US war against Iran.

Monday's meeting comes after Qatari mediators held discussions with Iranian officials in Tehran on Sunday in a bid to reduce regional tensions. West Texas Intermediate (WTI) Oil has retreated to about $100.39 per barrel, having touched $103.28 on Friday, its highest price since May.

Expectations of additional Federal Reserve (Fed) tightening, fuelled by higher Oil prices, drove Gold down around 4% last week, marking its largest weekly loss since June. That pressure outweighed the support provided by lower US Treasury yields and a weaker US Dollar (USD). Concerns surrounding AI-related investments encouraged buying of government bonds, pushing Treasury yields lower. Some traders may also have sold Gold to offset losses from the wider equity sell-off.

Gold's rebound is being restrained as the US Dollar and US Treasury yields halt their slide at the beginning of the week. The benchmark 10-year US Treasury yield is near 4.99%, while the US Dollar Index (DXY) trades at about 101.83. The index measures the Greenback against a basket of six major currencies.

Whether Gold can remain above the psychological $4,000 level or comes under renewed selling pressure could hinge on this week's Federal Reserve (Fed) monetary policy announcement.

When the Fed's two-day meeting ends on Wednesday, policymakers are widely expected to retain interest rates at 3.75%-4.00%. Gold buyers, however, may take little comfort from a pause if another increase in December remains an option. According to the CME FedWatch Tool, traders assign roughly a 79% probability to a hike.

Will a Fed pause give way to a December hike as inflation remains above target?

Analysts at TD Securities see little scope for fresh guidance, saying they do not expect "much new communication from the FOMC or Chair Warsh." They argue that "a hold in October will make a December hike all the more likely," especially following the "upside surprise in September CPI," which highlights that "inflation risks are still pertinent." Against that backdrop, TD Securities analysts "expect the Fed to hike two more times (December and March)," observing that "inflation remains above target while risks are growing." Their assessment that "the evolution of inflation data will determine the extent and pace of hikes later in the cycle," points to the importance of upcoming price readings for the policy trajectory beyond early next year.

Technical analysis: Can Gold clear the lower Bollinger Band?

With XAU/USD trading beneath the lower Bollinger Band at $4,020, the daily chart continues to signal a bearish near-term outlook. At 35, the Relative Strength Index (RSI) remains just above oversold levels, and the Moving Average Convergence Divergence (MACD) histogram is still below zero. Together, these readings suggest continued selling pressure rather than clear signs that the recent decline has run its course.

Any advance would first encounter resistance at the lower Bollinger Band around $4,020. Beyond that, the middle band near $4,131 and the upper band around $4,241 provide the next hurdles. If prices sustain a break above these levels, a rebound towards the $4,400-$4,500 zone could follow, with $4,700 the subsequent level to watch.

The $3,975-$3,950 area offers the nearest support. Should prices break decisively below this region, losses could deepen towards the psychological $3,900 level and then $3,800.

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

Gold: Common Questions

What attracts investors to Gold?

Widely used both to preserve wealth and as a means of exchange, Gold has held an important place throughout human history. Beyond its lustre and use in jewellery, the precious metal is now commonly regarded as a safe-haven asset, or an investment considered attractive during periods of turmoil. Its independence from any particular issuer or government also underpins its widespread role as a hedge against inflation and currency depreciation.

Which buyers hold the largest Gold reserves?

The largest holders of Gold are central banks. To support their currencies during unsettled periods, they often diversify reserves by purchasing the metal, bolstering perceptions of economic and currency strength. Substantial Gold holdings can reinforce confidence in a country's solvency. World Gold Council data show that central banks increased their reserves by 1,136 tonnes of Gold in 2022, valued at roughly $70 billion. That was the largest annual purchase on record. Emerging-economy central banks, including those in China, India and Turkey, are rapidly building up their Gold reserves.

How does Gold move relative to other assets?

Both the US Dollar and US Treasuries are leading reserve and safe-haven assets, and Gold typically moves inversely to them. A decline in the Dollar generally supports Gold, allowing investors and central banks to diversify their holdings during turbulent periods. The metal also has an inverse relationship with risk assets: rising equity markets tend to put pressure on Gold prices, whereas selling in riskier markets generally benefits it.

Which factors drive Gold prices?

A variety of influences can move Gold prices. Its safe-haven appeal means geopolitical turmoil or concerns about a severe recession can quickly send prices higher. Since Gold generates no yield, lower interest rates tend to support it, while a higher cost of borrowing usually puts pressure on the metal. Nevertheless, the US Dollar (USD) remains central to most price movements because Gold is denominated in dollars (XAU/USD). Dollar strength generally restrains Gold prices, while a softer Dollar is likely to lift them.