$4,000: Gold stays above mark as USD bulls look ahead to FOMC decision

A third straight day of USD strength leaves Gold struggling to extend its overnight advance.
The USD retains support from expectations of a Fed rate rise, recovering US bond yields and geopolitical uncertainty.
With traders awaiting the pivotal FOMC decision, scope for further XAU/USD losses appears limited.

Gold (XAU/USD) holds the $4,000 psychological level. Fresh selling in Tuesday's Asian session nevertheless interrupts the previous day's modest recovery from near a three-month low, as the US Dollar (USD) strengthens. Traders appear reluctant to commit ahead of Wednesday's outcome of the two-day FOMC policy meeting.

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

Markets continue to price in a probability of over 80% that the US central bank will lift borrowing costs again at its December policy meeting, despite recent signals from Federal Reserve (Fed) officials that a rate increase is not urgent. 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 policy statement and remarks by Fed Chair Kevin Warsh at the post-meeting press conference.

Further guidance on the Fed's policy trajectory will come from the Advance US Q3 GDP release and the Personal Consumption Expenditures (PCE) Price Index. That outlook will be an important driver of US Dollar (USD) movements and could give non-yielding Gold fresh impetus. Ahead of the central bank decision and key data releases, the safe-haven dollar is drawing support from Middle East tensions and a modest rebound in US bond yields from their recent three-week low.

Stalled US-Iran negotiations and fresh attacks on Saudi Arabia by Iran-aligned Houthis are keeping the geopolitical risk premium intact. On Monday, the Houthis said they had attacked Saudi Arabia's East-West crude oil pumping stations and Riyadh airport. Reports that Lebanese armed group Hezbollah is preparing for a possible renewal of hostilities with Israel further reduce hopes of near-term regional stability. These developments support USD bulls, leaving gold's path of least resistance tilted lower.

4-hour XAU/USD chart

Technical Outlook

A recent break below the short-term trading range leaves the commodity's near-term outlook bearish. On the 4-hour chart, the precious metal remains well beneath the 200-period Simple Moving Average (SMA) at $4,198.08, the main barrier to gains. Momentum readings have improved slightly: the Moving Average Convergence Divergence (MACD) line is rising above zero, while the Relative Strength Index (RSI) has climbed from oversold levels towards the mid-30s. These signals suggest a corrective rebound rather than a decisive trend reversal.

A sustained move below $4,000 would still be required to strengthen the case for further declines. Any advance faces initial resistance at the former trading range boundary, around $4,065-$4,075, followed by $4,100. A break above that level could put the 200-period SMA within reach and allow XAU/USD to reclaim the $4,200 round figure. Sustained gains beyond this barrier would soften the current bearish bias and pave the way for a more substantial recovery.

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

Fed: Key Questions

Federal Reserve policy: what is its role and effect on the US Dollar?

The Federal Reserve (Fed) sets US monetary policy with two objectives: stable prices and full employment. Adjusting interest rates is its main means of pursuing those goals. If prices rise 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 more attractive to international investors, 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. This puts pressure on the Greenback.

Eight annual Fed policy meetings: how are they organised?

At eight meetings each year, the Federal Open Market Committee (FOMC) of the Federal Reserve (Fed) reviews the economy and decides on monetary policy. Twelve Fed officials attend the FOMC: the 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 seats rotate on one-year terms.

Quantitative Easing (QE): how does it work and affect USD?

When conditions become extreme, the Federal Reserve may use Quantitative Easing (QE) to expand credit flows substantially through a financial system that is no longer functioning smoothly. This unconventional measure is used in crises or periods of exceptionally low inflation. During the Great Financial Crisis in 2008, it was the Fed’s preferred policy response. The central bank creates more Dollars and purchases high-grade bonds from financial institutions with them. The US Dollar typically weakens under QE.

Quantitative Tightening (QT): what changes and how does the US Dollar respond?

By reversing QE, Quantitative Tightening (QT) ends Federal Reserve bond purchases from financial institutions. The central bank also stops reinvesting principal repaid on its maturing bond holdings in new bonds. This process generally supports the US Dollar’s value.