Can gold shake off pressure near $4,000 as US Dollar firms ahead of Fed decision?

Gold remains under pressure ahead of the Fed decision, weighed down by a continued recovery in the US Dollar.
Traders await guidance on a possible December rate hike as the Fed is expected to leave rates unchanged.
Sellers retain the advantage in momentum indicators, leaving the technical outlook weak.

Pressure from a recovering US Dollar (USD) keeps Gold (XAU/USD) struggling near $4,000 on Tuesday, following a modest advance at the beginning of the week. As traders adjust positions before Wednesday’s Federal Reserve (Fed) monetary policy announcement, the Dollar is extending its rebound from recent weakness. XAU/USD is trading at about $4,012 at the time of writing, remaining above the three-month low of $3,975 recorded last week.

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Having reached 101.45 last week, its weakest reading since 1 October, the US Dollar Index (DXY) has climbed above 102.00 to a two-week high. The index measures the Greenback against a basket of six major currencies. Dollar strength raises the cost of Gold for buyers holding other currencies.

Can the Fed and energy backdrop sustain Dollar support?

According to ING strategists, the Dollar has “found good support early this week,” with steadier AI-related sentiment enabling markets to “reconnect with the broader supportive backdrop of a hawkish Federal Reserve and high energy prices.” The strategists also observe that “pre-FOMC positioning may also be kicking in,” as forward-looking FX markets interpret Chair Kevin Warsh’s “reiteration of inflation commitments as reinforcing the structural floor for the Dollar.” Referring to their earlier preview, ING says they “sympathise with this view and expect a broadly supported Dollar this week.”

An unchanged rate decision is expected from the US central bank following September’s 25 basis points (bps) increase to 3.75%-4.00%. That move, the first rate rise since 2023, came as higher energy costs associated with the war in the Middle East intensified inflationary pressures.

With markets widely anticipating a pause, attention will turn to the policy statement and Chair Kevin Warsh’s press conference for indications of the next step. The revised dot plot released in September put the median rate forecast at 4.1% for both end-2026 and end-2027. This implied another quarter-point increase this year, followed by no net change next year. Against that backdrop, the CME FedWatch Tool shows traders assigning roughly an 80% probability to a further rate increase in December.

Gold could face a sustained breach of $4,000 if the Fed delivers a hawkish message. By contrast, a focus on allowing time to evaluate incoming data could provide some respite. A more substantial rebound may nevertheless prove challenging, with inflation still above the Fed’s 2% target and elevated energy costs threatening to prolong price pressures. Although Gold is widely regarded as an inflation hedge, rising interest rates make holding the non-yielding metal more costly in terms of forgone returns.

Supply risks and diplomatic initiatives remain in focus for oil traders, with West Texas Intermediate (WTI) Crude Oil trading near $101.50 per barrel. Talks in Tehran on Monday brought together Iranian officials and representatives of Saudi Arabia, Turkey and Pakistan, and all four countries agreed to keep discussions going. Nevertheless, threats to shipping security in the Strait of Hormuz, alongside Houthi attacks on Saudi Arabia, continue to fuel concerns over supply.

Technical analysis: Can the $4,000-$3,950 support zone hold against selling pressure?

Sellers remain in control of XAU/USD on the daily chart, with the price below its 50-day, 100-day and 200-day Simple Moving Averages (SMAs), preserving the bearish near-term outlook. A Relative Strength Index (RSI) reading of 35 signals subdued buying momentum. Meanwhile, the Moving Average Convergence Divergence (MACD) stays below zero, indicating continued downward pressure.

Any move higher would first encounter resistance around $4,219 at the 100-day SMA, with the 50-day SMA at $4,288 providing the next hurdle. If the recovery gathers strength, attention could shift to horizontal resistance at $4,400, followed by the 200-day SMA near $4,504.

Immediate support lies in the $4,000-$3,950 band; a breach would leave room for a deeper pullback. Rebound attempts, meanwhile, are likely to face difficulty while the price remains below the cluster of daily moving averages.

(An AI tool assisted in preparing the technical analysis in this article. Find out more.)

Questions about the Fed

How does the Federal Reserve’s role influence the US Dollar?

The Federal Reserve (Fed) sets US monetary policy with a dual mandate: maintaining price stability and promoting full employment. Adjusting interest rates is its main means of meeting these objectives. If prices increase too rapidly and inflation exceeds the Fed’s 2% target, the central bank raises interest rates, pushing up borrowing costs across the economy. The resulting increase in the appeal of US investments to international investors strengthens 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, putting pressure on the Greenback.

How frequently does the Fed meet to decide monetary policy?

At eight policy meetings each year, the Federal Open Market Committee (FOMC) of the Federal Reserve (Fed) reviews economic conditions and determines monetary policy. Twelve Fed officials attend the FOMC: seven Board of Governors members, the Federal Reserve Bank of New York president and four presidents drawn from the other eleven regional Reserve Banks. Those four serve rotating one-year terms.

How does Quantitative Easing (QE) work, and what does it mean for USD?

When conditions become extreme, the Federal Reserve may turn to Quantitative Easing (QE), a policy designed to sharply expand the supply of credit within a stalled financial system. This unconventional measure is deployed in crises or periods of exceptionally low inflation. During the Great Financial Crisis in 2008, it was the Fed’s preferred policy tool. Under QE, the Fed prints additional Dollars to purchase high-grade bonds from financial institutions, a process that generally weakens the US Dollar.

How does Quantitative Tightening (QT) affect the US Dollar?

By reversing QE, quantitative tightening (QT) generally supports the US Dollar’s value. Under this policy, the Federal Reserve halts bond purchases from financial institutions and, as bonds in its portfolio mature, does not use the repaid principal to buy new bonds.