Can gold find momentum as the Fed’s policy decision approaches?

• Can Gold extend its two-day recovery ahead of the Fed’s interest rate decision?
• Clues to a December rate hike are in focus as traders expect the Fed to leave interest rates unchanged.
• Immediate support for XAU/USD lies at $4,000-$3,950 as the pair trades below key daily moving averages.

Renewed strength in Oil prices and a steady US Dollar (USD) are capping Gold’s (XAU/USD) recovery on Wednesday, with investors awaiting the Federal Reserve’s (Fed) monetary policy announcement at 18:00 GMT. Over the previous two days, softer Oil prices had helped bullion bounce back from its lowest levels since July.

Trading near $4,046 at the time of writing, XAU/USD is down 0.36% for the day. Meanwhile, the US Dollar Index (DXY) holds close to two-week highs at around 102.40, showing little change. The index measures the Greenback against a basket of six major currencies.

A Wall Street Journal report that Washington had alerted Gulf states to a possible military operation against Iran after the US midterms has fuelled a rebound in Oil prices. West Texas Intermediate (WTI) is up 1.0% on the day, trading near $100.50 a barrel.

Since the Middle East war broke out in late February, elevated energy costs have sustained inflationary pressures, leading major central banks, particularly the Fed, to tighten monetary policy. Reiterating its commitment to bringing inflation back to its 2% target, the US central bank increased interest rates by 25 basis points (bps) in September and indicated that another hike would follow before year-end.

For the October meeting, the broad expectation is that policymakers will leave interest rates at 3.75%-4.00%. According to the CME FedWatch Tool, traders assign an 85% probability to a December hike.

Recent US data developments leave scope for the Fed to pause for now, analysts at ABN Amro argue. In their assessment, “combined with the recent softer PCE readings, the labour data remove much of the pressure to hike immediately,” meaning policymakers can “afford another six weeks to assess whether the latest inflation strength represents persistent pressure or another temporary bump.”

ABN Amro therefore expects the Fed “to hold in October, deliver one final 25bp hike in December, and then keep rates unchanged for an extended period.” The analysts explain that “the mix of persistent near-term inflation risk and a cooling labour market argues for patience rather than complacency.”

Markets largely anticipate a pause, making guidance on the policy path a potentially bigger driver of the reaction than the rate decision itself. A signal that additional hikes remain possible could lift the US Dollar and threaten Gold’s support at $4,000, as higher interest rates raise the opportunity cost of holding a metal that offers no yield. Conversely, a less hawkish message could pressure the Greenback, allowing bullion to stage a short-term relief rally.

Technical analysis: Can Gold defend immediate support?

Sellers retain control on the daily chart, where XAU/USD trades beneath its 50-day, 100-day and 200-day Simple Moving Averages (SMAs), sustaining a bearish near-term outlook. Buying momentum remains weak, with the Relative Strength Index (RSI) at 40. Continued downside pressure is also indicated by the Moving Average Convergence Divergence (MACD), which stays in negative territory.

Any advance would first encounter resistance near $4,219 at the 100-day SMA, with the 50-day SMA at $4,288 marking the next hurdle. Beyond these levels, a more substantial rebound could turn attention to horizontal resistance at $4,400, followed by the 200-day SMA near $4,503.

Immediate downside support lies in the $4,000-$3,950 zone; a breach would create scope for a deeper retracement. Meanwhile, recovery attempts are likely to face difficulty while the price remains below the cluster of daily moving averages.

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