Oil above $100 clouds Fed rate outlook as gold eases towards $4,000

• Gold declines 0.50% to $4,039 with US Treasury yields climbing to 5.040%.
• WTI jumps towards $103 as Middle East supply risks intensify.
• Markets put the chance of a December Fed hike at 85% before the FOMC decision.

A 0.50% decline leaves Gold (XAU/USD) trading at $4,039 at the time of writing on Wednesday. The US-Iran conflict appears far from resolution, while investors await the Federal Reserve’s (Fed) monetary policy announcement at 18:00 GMT.

XAU/USD declines ahead of Warsh’s press conference as Treasury yields climb and inflation risks resurface

With the Fed announcement approaching, traders are adopting a cautious stance. US equities remain subdued and US Treasury yields are edging up, while the conflict in the Middle East continues to support oil prices.

A three-basis-point increase in the US 10-year Treasury yield to 5.040% is keeping bullion under pressure. The US dollar, however, has eased ahead of the FOMC announcement. The US Dollar Index (DXY), which tracks the currency against a basket of six others, is 0.09% lower at 102.27.

Attention remains firmly on the Fed, with money markets having almost fully priced in an unchanged Fed funds rate of 3.75%-4%. At Fed Chair Kevin Warsh’s press conference, however, questions are likely over why rates should not rise today. West Texas Intermediate (WTI), the US oil benchmark, is trading close to $103 per barrel after gaining more than 3%, while gasoline costs $4.24, or $1.20 more than a year earlier, according to AAA Fuel Prices.

The latest Summary of Economic Projections (SEP) also showed that most board members had projected at least one further interest rate increase this year. Traders will therefore seek clues from Warsh on the path of rates, despite his reluctance to give markets forward guidance.

An attack on a Saudi refinery by the Iran-backed Houthis in Yemen has kept tensions between the group and Saudi Arabia elevated. Fears of supply disruption following the attack have driven energy prices higher.

Once the Fed meeting concludes, Gold traders will turn their attention to Thursday’s Core Personal Consumption Expenditures (PCE) Price Index, the central bank’s preferred inflation gauge. A strong inflation reading, combined with robust Gross Domestic Product (GDP) figures, will reinforce the case for a further rate increase at the December meeting.

According to Prime Terminal, swaps markets had factored in 21 basis points of tightening, equivalent to an 85% probability of a Fed rate increase at the December meeting.

Despite Gold’s attraction as a hedge against inflation, higher interest rates weigh on its price.

Separately, analysts surveyed by Reuters have lowered their Gold price forecasts for the end of 2026.

XAU/USD technical analysis: Gold holds in a $4,000-$4,100 consolidation range

Wednesday’s price action casts doubt on the ‘bullish harami’ candlestick pattern previously formed by Gold. A daily close near current levels could set the stage for a period of consolidation.

Momentum has turned negative, with the bearish Relative Strength Index (RSI) pointing lower in line with price action. Against this mixed backdrop, trading will remain around familiar levels until the Fed announces its decision.

The first upside area to watch is the resistance trendline extending from September’s highs, near $4,100. A break above it would bring $4,200 into view, followed by key resistance at the 100-day Simple Moving Average (SMA) of $4,218 and the 50-day SMA of $4,278.

A break below $4,000 could take XAU/USD towards last Friday’s low of $3,975. Further support lies at the 17 July low of $3,959, followed by the year-to-date (YTD) trough of $3,941.