Why is gold slipping towards $4,000 as oil above $100 clouds the Fed’s rate outlook?

• Gold loses 0.50%, trading at $4,039 as US Treasury yields climb to 5.040%.
• WTI rallies towards $103 as Middle East supply risks intensify.
• Ahead of the FOMC decision, the probability of a December Fed rate hike is 85%.

Gold (XAU/USD) remains under pressure on Wednesday, slipping 0.50% as investors await the Federal Reserve’s (Fed) monetary policy announcement at 18:00 GMT and an end to the US-Iran conflict appears distant. At the time of writing, XAU/USD is quoted at $4,039.

Can XAU/USD withstand higher Treasury yields and renewed inflation risks ahead of Warsh's press conference?

Caution prevails among traders before the Fed announcement, leaving US equities subdued. At the same time, US Treasury yields inch upwards, while the Middle East conflict continues to support Oil prices.

A three-basis-point increase in the US 10-year Treasury yield to 5.040% keeps bullion under pressure. By contrast, the US Dollar is easing before the FOMC decision. The US Dollar Index (DXY), which tracks the American currency against six other currencies, has slipped 0.09% to 102.27.

With attention centred on the Fed announcement, money markets have almost fully priced in an unchanged Fed funds rate of 3.75%-4%. However, Fed Chair Kevin Warsh is likely to face questions at his press conference about 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%. According to AAA Fuel Prices, gasoline costs $4.24, which is $1.20 more than a year earlier.

In the latest Summary of Economic Projections (SEP), a majority of the board also projected at least one further interest rate increase this year. Traders will therefore seek clues from Warsh on the outlook for rates, despite his reluctance to provide forward guidance to markets.

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

Once the Fed meeting concludes, Gold traders will turn to Thursday’s release of the Core Personal Consumption Expenditures (PCE) Price Index, the central bank’s preferred inflation gauge. If the reading is hot and Gross Domestic Product (GDP) figures are strong, the case for another rate increase at the December meeting will be cemented.

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

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

Notably, a Reuters poll showed that analysts had lowered their Gold price forecasts for the end of 2026.

XAU/USD technical analysis: Can Gold break out of the $4,000-$4,100 consolidation range?

Wednesday’s price action casts doubt on the ‘bullish harami’ candlestick pattern that Gold had formed. A daily close near current prices could pave the way for a period of consolidation.

The momentum picture has turned negative, with the Relative Strength Index (RSI) pointing lower in bearish territory, in line with price action. With signals still mixed, prices are set to stay around familiar levels until the Fed announcement.

For an upward move, the first area to watch is the resistance trendline drawn from the September highs, near $4,100. A break above it would bring $4,200 into focus, followed by the 100-day Simple Moving Average (SMA) at $4,218 and the 50-day SMA at $4,278 as the next important resistance levels.

Below $4,000, XAU/USD could revisit 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) low of $3,941.