Gold consolidates post-FOMC pullback from record high amid further USD recovery

• Gold stalls the post-FOMC pullback from levels beyond the $3,700 mark.

• The Fed’s dovish stance and rising geopolitical tensions offer support to the precious metal.

• A further USD recovery from a multi-year low seems to cap the upside for the XAU/USD pair.

Gold (XAU/USD) is seen consolidating the previous day's retracement slide from the record high, levels beyond the $3,700 mark, touched in the aftermath of the FOMC dovish rate cut. In fact, the US central bank signaled two more rate cuts by the end of this year, which, in turn, acts as a tailwind for the non-yielding yellow metal during the Asian session on Thursday. Furthermore, the risk of a further escalation of geopolitical tensions, amid the intensifying Russia-Ukraine war and conflicts in the Middle East, turns out to be another factor lending support to the safe-haven commodity.

In the post-meeting press conference, Fed Chair Jerome Powell indicated that Wednesday's move to lower interest rates was a risk management cut and added that he doesn't feel the need to move quickly on rates. This could assist the US Dollar (USD) to build on the previous day's solid intraday recovery from its lowest level since February 2022, which, in turn, might put a lid on the Gold price. Nevertheless, the fundamental backdrop seems tilted in favor of the XAU/USD bulls, suggesting that any further downfall could be seen as a buying opportunity and is likely to remain limited.

Daily Digest Market Movers: Gold bulls seem reluctant as modest USD strength offsets dovish Fed signals

The Federal Reserve, as was widely anticipated, lowered its benchmark rate for the first time since December, by 25 basis points, putting the overnight funds rate in a range between 4.00%-4.25%. Moreover, the US central bank saw the need for two more rate cuts this year amid worries about a softening US labor market. This, in turn, lifted the non-yielding Gold to a fresh all-time high, levels beyond the $3,700 mark on Wednesday.

US Treasury bond yields and the US Dollar recovered sharply after a brief slump that followed the announcement, as Fed Chair Jerome Powell said that risks to inflation are tilted to the upside. Speaking to reporters, Powell added that the central bank is in a meeting-by-meeting situation regarding the outlook for interest rates. This, in turn, weighed on the non-yielding yellow metal and led to a dramatic intraday turnaround.

Alongside the policy decision, the US central bank also published updated economic forecasts, and now expects the economy to grow by 1.6% this year, 1.8% in 2026, and 1.9% in 2027. Meanwhile, the Fed’s core PCE estimate, which excludes the more volatile food and energy components, implies a 3.1% pace of inflation this year, 2.6% next year, and 2.1% in 2027, while the long-term forecast remained unchanged at the 2% target.

On the geopolitical front, Russia's Defence Ministry said that our troops are advancing in practically all directions in the zone of the special military operation. Separately, German Chancellor Friedrich Merz warned that Russia has been testing the limits by violating NATO and EU airspace. Moreover, European Commission head Ursula von der Leyen wants the European Union to quicken the halt of Russian gas and oil imports.

The Israeli military has intensified its use of booby-trapped armoured vehicles to demolish residential neighbourhoods in Gaza City and is pressing ahead with a brutal offensive that has drawn widespread international condemnation. The EU is considering imposing tariffs on Israel and sanctioning extremist ministers in the government to pressure Israel to end the war in Gaza, which has now dragged on for 23 months.

Traders now look forward to Thursday's US economic docket – featuring the release of the usual Weekly Initial Jobless Claims and the Philly Fed Manufacturing Index – for some impetus later during the North American session. Apart from this, the Bank of England policy update could infuse some volatility and influence the XAU/USD pair ahead of the crucial Bank of Japan monetary policy decision on Friday.

Gold could accelerate the corrective fall below the $3,645 resistance-turned-support

The daily Relative Strength Index (RSI) remains in the overbought territory and might further prompt profit-taking around the Gold. That said, the overnight bounce from the vicinity of a bullish flag pattern resistance breakpoint, now turned support, near the $3,645 region, warrants caution for the XAU/USD bears. Hence, it will be prudent to wait for some follow-through selling below the said area before positioning for further losses towards the $3,610-3,600 area.

On the flip side, the $3,678-3,680 region could act as an immediate hurdle ahead of the $3,700-3,707 zone, or the record high set on Wednesday. A sustained strength beyond the latter will be seen as a fresh trigger for bullish traders and should allow the Gold price to build on the recent breakout momentum and prolong a well-established uptrend witnessed over the past month or so.