Gold struggles to gain traction ahead of Fed policy verdict

• Gold pauses its two-day rebound as traders await the Fed’s interest rate decision.
• The Fed is expected to hold rates steady, with traders looking for clues on a December hike.
• XAU/USD remains below key daily moving averages, with immediate support at $4,000-$3,950.

Gold (XAU/USD) stalls its rebound on Wednesday as investors await the Federal Reserve’s (Fed) monetary policy announcement, due at 18:00 GMT. Easing Oil prices helped bullion recover from its lowest levels since July over the past two days. However, renewed gains in Oil prices and a steady US Dollar (USD) are limiting further upside.

At the time of writing, XAU/USD trades around $4,046, down 0.36% on the day. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is little changed around 102.40, near two-week highs.

Oil prices rebound after the Wall Street Journal reported that Washington had warned Gulf states of a possible military operation against Iran after the US midterms. West Texas Intermediate (WTI) trades around $100.50 a barrel, up 1.0% on the day.

Higher energy costs have kept inflation pressures elevated since the Middle East war erupted in late February, prompting major central banks, particularly the Fed, to tighten monetary policy. The US central bank raised interest rates by 25 basis points (bps) in September and signalled another increase before year-end, reaffirming its commitment to returning inflation to its 2% target.

Policymakers are widely expected to keep interest rates unchanged at 3.75%-4.00% at the October meeting, while traders price in an 85% probability of a hike in December, according to the CME FedWatch Tool.

Analysts at ABN Amro argue that recent developments in the US data give the Fed room to pause for now. They note that, “combined with the recent softer PCE readings, the labour data remove much of the pressure to hike immediately,” allowing policymakers to “afford another six weeks to assess whether the latest inflation strength represents persistent pressure or another temporary bump.”

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

With a pause largely anticipated, guidance on the policy outlook could trigger a stronger market reaction than the decision itself. If policymakers signal that further rate hikes remain on the table, the US Dollar could strengthen, putting Gold’s $4,000 support level at risk. Higher interest rates increase the opportunity cost of holding the non-yielding metal. On the other hand, a less hawkish tone could weigh on the Greenback and give bullion room for a short-term relief rally.

Technical analysis:

On the daily chart, XAU/USD maintains a bearish near-term bias as it trades below the 50-day, 100-day and 200-day Simple Moving Averages (SMAs), keeping sellers in control. The Relative Strength Index (RSI) at 40 points to weak buying momentum, while the Moving Average Convergence Divergence (MACD) remains in negative territory, suggesting that downside pressure persists.

On the upside, initial resistance stands at the 100-day SMA near $4,219, followed by the 50-day SMA at $4,288. A stronger recovery could bring the horizontal resistance at $4,400 into focus, ahead of the 200-day SMA around $4,503.

On the downside, the $4,000-$3,950 zone offers immediate support. A break would open the door to a deeper retracement, while recovery attempts are likely to struggle as long as price trades below the clustered daily moving averages.

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