Two-week USD high: Gold edges lower ahead of FOMC decision

• Two days of gains leave Gold struggling to extend its advance. A firm USD limits momentum.
• Expectations of a Fed rate hike and geopolitical uncertainty sustain demand for the safe-haven US Dollar.
• For fresh direction, traders await the FOMC rate decision and major US economic releases.

Around $4,070 marked Gold's weekly high in Wednesday's Asian session. Gold (XAU/USD) has since retreated, ending a two-day run of gains before the key central bank event. Later today, the US Federal Reserve (Fed) will announce its policy decision, with rates widely expected to remain on hold. Attention therefore centres on the policy statement and Fed Chair Kevin Warsh's remarks at the subsequent press conference.

Further signals on the Fed's policy direction will come under scrutiny in Thursday's major US releases: the Advance Q3 GDP report and the Personal Consumption Expenditures (PCE) Price Index. That outlook will be a key driver of near-term US Dollar (USD) movements and could give non-yielding gold meaningful direction. For now, traders assign more than an 80% probability to another increase in US borrowing costs in December, according to CME Group's CME FedWatch Tool. High energy prices also fuel inflation concerns, reinforcing the prospect of additional Fed tightening and constraining the non-yielding metal.

October Fed Pause Expected, December Tightening in Focus

An unchanged Fed decision this week is also the base case for BNY Markets strategists, consistent with market pricing. They note 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.” BNY nevertheless cautions that “we do expect at least one dissent, if not more, in favor of raising rates.” The strategists explain 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.” On the forthcoming press conference, they say 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 about escalating Middle East tensions also keep the geopolitical risk premium intact. On Tuesday, The Wall Street Journal reported that the US had instructed several Gulf Arab countries to prepare for a short, intense military campaign against Iran following the November 3 midterm elections. Yemen's Iran-backed Houthis also claimed a direct ballistic missile hit on Saudi Arabia's defence ministry in Riyadh. With US–Iran talks still at an impasse, crude oil prices have advanced again. This has helped the safe-haven US Dollar retain its recent strong gains at a two-week high, adding another source of pressure on Gold.

Despite the retreat, XAU/USD remains well above the three-month low recorded earlier this week, suggesting caution for traders taking aggressive bearish positions. Nevertheless, the fundamental conditions outlined above point to a continued downside bias for the precious metal. Any recovery attempt is more likely to attract selling.

1-hour XAU/USD chart

Technical Outlook

At $4,044.21, the 100-hour Exponential Moving Average (EMA) provides support just below XAU/USD, limiting immediate downside pressure. Bullish momentum remains modest, however, with the Relative Strength Index (RSI) near 55. The Moving Average Convergence Divergence (MACD) has also turned negative, suggesting that attempts to advance may be fading as the market consolidates the earlier rise. Bulls have another reason for caution after prices failed overnight to establish themselves above the 38.2% Fibonacci retracement of the latest decline.

A sustained move through the 38.2% Fibo. resistance at $4,063.08 could open the way towards the 50% level at $4,089.75, followed by the 61.8% retracement at $4,116.43. Further resistance stands at $4,154.40 and the cycle high 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 structural support around $3,976.72.

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