Gold eases ahead of FOMC decision with USD at two-week high

• After two days of gains, Gold finds further progress difficult as the USD remains firm.
• Expectations of a Fed rate rise, alongside geopolitical uncertainty, sustain demand for the safe-haven US Dollar.
• With the FOMC rate announcement and major US economic releases ahead, traders await fresh direction.

An unchanged interest rate is widely expected when the US Federal Reserve (Fed) announces its policy decision later today. Ahead of that key central bank event, Gold (XAU/USD) has retreated from the weekly peak of around $4,070 reached in Wednesday's Asian session, ending a two-day run of gains. Attention will therefore centre on the accompanying policy statement and remarks from Fed Chair Kevin Warsh at the post-meeting press conference.

Further indications of the Fed's policy trajectory will be sought from Thursday's major US economic releases: the Advance Q3 GDP report and the Personal Consumption Expenditures (PCE) Price Index. By shaping near-term movements in the US Dollar (USD), that outlook will also provide meaningful direction for non-yielding gold. For now, traders assign a probability of over 80% to another increase in US borrowing costs in December, according to the CME Group's CME FedWatch Tool. Elevated energy prices are also fuelling inflation concerns and reinforcing the prospect of additional Fed tightening, limiting the appeal of bullion, which offers no yield.

Markets price in an October Fed pause and look towards December tightening

An unchanged Fed rate this week is also the expectation of strategists at BNY Markets, consistent with current market pricing. They explain that “in line with the market, we don’t foresee a rate hike in October and prefer to place our expectations for further tightening on the December meeting.” Their caveat is that “we do expect at least one dissent, if not more, in favor of raising rates.” On the likely market response, they say that “if we’re right, and there is an objection (or two), we would expect the market to interpret Wednesday’s decision hawkishly, solidifying the expectation of a hike at the end of the year.” Turning to the press conference, the strategists add that “we don’t see any preview of what we expect to be a December hike, given Chair Kevin Warsh’s disinclination to provide guidance on future policy moves. Nevertheless, we think that market expectations for a December hike will be solidified.”

Concerns that Middle East tensions could escalate further continue to sustain a geopolitical risk premium. According to a report published by The Wall Street Journal on Tuesday, the US has instructed several Gulf Arab countries to prepare for a brief, intense military campaign against Iran after the 3 November midterm elections. Meanwhile, Yemen's Iran-backed Houthis claimed a direct hit on Saudi Arabia's defence ministry in Riyadh using a ballistic missile. With US–Iran talks also at an impasse, crude oil prices have risen again, helping the safe-haven US Dollar retain the strong gains that recently took it to a two-week high. Gold is facing additional pressure as a result.

Nevertheless, XAU/USD remains comfortably clear of the three-month low reached earlier this week, giving traders reason to be cautious about taking aggressive bearish positions. The fundamental backdrop outlined above still points to a downward path of least resistance for the precious metal, with any recovery attempt more likely to attract selling.

XAU/USD trades on the 1-hour chart

Technical Indicators Show Limited Bullish Momentum

Immediate selling pressure is being contained by the 100-hour Exponential Moving Average (EMA) at $4,044.21, with XAU/USD trading just above that support. Bullish momentum nevertheless appears modest, judging by a Relative Strength Index (RSI) reading of around 55. A move below zero in the Moving Average Convergence Divergence (MACD) also suggests that attempts to push higher may be fading as the market absorbs the preceding rise. For bullish traders, another reason for caution is the overnight failure to establish a foothold above the 38.2% Fibonacci retracement of the latest decline.

A sustained move through the 38.2% Fibo. resistance at $4,063.08 could, however, open the way towards the 50% retracement at $4,089.75, followed by the 61.8% level at $4,116.43. Further resistance lies at $4,154.40 and the cycle peak near $4,202.78. Conversely, a decisive breach of immediate support at the 100-hour EMA would bring the 23.6% Fibo. retracement at $4,030.07 into view. A more pronounced decline could then target the structural support around $3,976.72.

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