$4,050 breached as gold climbs ahead of Fed rate decision

• 1.15% is Gold’s daily gain in early Asian trading on Wednesday. The price advances to near $4,065.
• Lower oil prices lend support to Gold by tempering inflation concerns.
• Attention shifts to the Fed’s policy meeting later on Wednesday.

$4,065 is the level Gold (XAU/USD) approaches in early Asian trading on Wednesday. Falling oil prices underpin the advance. For guidance on the outlook for US interest rates, traders are awaiting the Federal Reserve’s (Fed) policy meeting later on Wednesday.

With Middle East peace talks drawing attention, crude oil extends its decline for a second day. Renewed tensions involving the US-Iran and Houthi-Saudi Arabia conflicts could, however, lift energy prices and revive inflation concerns. The yellow metal could then face pressure if those concerns strengthen the case for central banks to tighten monetary policy.

Peter Grant, vice president and senior metals strategist at Zaner Metals, said: "Softer oil prices will probably provide some lift for gold because it relieves the inflation worries and arguably moderates Fed hawkishness to some degree,"

Later in the day, the Fed’s interest rate decision will be the main focus. An unchanged rate is the likely outcome when the US central bank concludes its October policy meeting.

A Wednesday rate increase carries just a 6.6% probability in current market pricing. Nevertheless, high energy prices continue to fuel expectations of a hike before year-end, with the probability of a December US rate increase at 84.4%. For non-yielding gold, higher interest rates raise the opportunity cost of holding the metal.

Thursday brings the US Personal Consumption Expenditures (PCE) data, which traders will scrutinise. This is the measure the Fed follows most closely in pursuing its 2% inflation target.

Gold Weakens as Copper Recovers; Crude Consolidates and Equities Diverge

Across commodities and risk assets, Scotiabank strategists see an uneven backdrop. Their assessment is that “copper is tentatively extending its recovery from the lower end of its flat range,” whereas “gold appears increasingly vulnerable as it attempts to hold on to the psychologically important $4000/oz level.” They also caution that “easing geopolitical concerns (US/Iran, Russia/Ukraine) remain a major risk for precious metals and the continued decline in silver leaves the balance clearly tilted to the downside.”

Turning to energy, Scotiabank observes that “the price(s) of crude look to have settled into tight consolidation ranges with WTI steady just above $100/bbl and Brent above $115/bbl.” The strategists describe divergent equity markets, noting that “global equity indices have been mixed however, with notable weakness in China’s CSI offering a stark contrast to the 3% gain in the Kospi,” and that “performance across European bourses has been generally soft.”

5.6/10 for Warsh: Investment Surge and AI Risks, No Policy Commitment

At 5.6/10, Fed Chair Warsh’s FXS Speechtracker reading is modestly below the historical average of 6.1/10. The score points to caution, notwithstanding positive comments on structural growth and a surge in investment. Describing himself as “over-scarred from the global financial crisis” signals a pronounced focus on risk management. At the same time, Warsh stresses policy-driven investment strength without prejudging forthcoming FOMC decisions, leaving Dollar traders focused on data-dependent outcomes. His treatment of AI as both a source of demand and a means of improving confidence in monetary policy data gives the Fed’s reaction function a nuanced, forward-looking dimension. It offers no clear steer, however, on the near-term employment impact.

A 0.00-point move left the FXS Fed Sentiment Index unchanged at an elevated 127.51. Despite the marginally softer FXS Speechtracker reading, the broader policy message therefore remains firmly hawkish. The index is well above its neutral 100 level. Markets are consequently likely to view Warsh’s investment optimism, focus on AI and crisis-shaped caution as consistent with a Fed inclined to maintain or tighten policy, rather than shift towards a dovish stance.

Gold Technical Outlook: Near-Term Bearish Bias

Below both the 20-day Moving Average, the middle Bollinger band, and the 100-day Moving Average, XAU/USD retains a bearish near-term bias on the daily chart. Together, these averages limit the upside and indicate fading momentum in the broader uptrend. The price remains well below the upper Bollinger band, reflecting a retreat from earlier extremes. A slightly negative Relative Strength Index (14) reading of 41 also suggests that selling pressure continues to prevail during rebounds.

Near $4,125, the 20-day simple Bollinger midline provides the first upside resistance. Beyond it lie the 100-day Moving Average around $4,220 and the upper Bollinger band at $4,235. A break above the latter would be required to restore a stronger bullish tone. Immediate downside support sits at the lower Bollinger band of $4,015. Closing below that band on a daily basis would leave scope for a deeper correction; staying above it would keep the retreat in the category of a consolidative pullback, rather than a full trend reversal.

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