Gold consolidates near two-week low, holds above $4,000 as traders await FOMC decision
- Gold remains on the defensive as traders move to the sidelines ahead of the FOMC decision.
- A modest USD downtick supports the commodity, though the upside potential seems limited.
- Recovering oil prices revive inflation fears, boost Fed hike bets, and cap the precious metal.
Gold (XAU/USD) enters a bearish consolidation phase after touching an over one-week low during the Asian session on Wednesday, though it manages to hold above the $4,000 psychological mark. A softer tone surrounding the US Dollar (USD) offers some support to the precious metal. However, a fresh escalation of tensions between the US and Iran should limit the downside for the Greenback. Furthermore, traders might opt to wait for the outcome of a two-day FOMC meeting for more cues about the path of US interest rates, which will influence the USD demand and provide some meaningful impetus to the non-yielding yellow metal.
In the latest developments surrounding the Middle East crisis, Iran's Islamic Revolutionary Guard Corps (IRGC) launched a surprise attack and targeted US forces in the Middle East with multiple ballistic missiles late Tuesday. All Iranian missiles were successfully intercepted, the US Central Command (Centcom) said in a post on X, and added that US forces remain vigilant and at a high state of readiness. In a subsequent statement, Centcom said that the US and Saudi forces struck multiple terrorist logistics and weapons sites in eastern Iraq, retaliating against more than 30 drone attacks in the past three days by Iran-aligned terrorists.
Meanwhile, President Donald Trump once again warned that the US will return to strong military action against Iran and target key Iranian infrastructure if diplomatic efforts do not bring a rapid resolution to the crisis. This keeps geopolitical risk premium in play and should support the safe-haven USD. Adding to this, concerns about significant disruptions to global energy supplies trigger a sharp recovery in crude oil prices, reviving inflation fears and bolstering bets for at least one interest rate hike by the US central bank. Yemen’s Iran-aligned Houthis fired missiles at a Saudi oil tanker for violating the maritime navigation ban imposed on Saudi vessels.
This comes on top of the US-Iran standoff over the Strait of Hormuz and helps crude oil prices to stage a goodish recovery from an over two-week low, touched on Tuesday. The fundamental backdrop validates the near-term positive outlook for the USD, warranting some caution before positioning for any meaningful appreciation in the Gold price.
XAU/USD daily chart
Technical analysis: Gold’s bearish setup backs the case for further near-term depreciation
The recent range-bound price action since June 19 might be categorized as a bearish consolidation phase against the backdrop of a breakdown below a technically significant 200-day Simple Moving Average (SMA). Moreover, the wide gap between spot and this longer-term SMA suggests the broader trend remains under pressure despite some recent stabilization.
Meanwhile, the Relative Strength Index (RSI) hovers around 43 and keeps momentum in mildly negative territory. That said, the Moving Average Convergence Divergence (MACD) edges higher and hints at a tentative recovery attempt within a still-depressed structure. Hence, any attempted recovery might continue to face an immediate hurdle near the $4,050 level.
Further up, the top boundary of the trading range near $4,200 should act as a key barrier to beat. A daily close above this would be needed to ease the broader bearish bias and open the door to a more sustainable advance to the 200-day SMA at $4,493.65.
On the downside, the $4,000 mark, followed by the $3,965 region, or the lower end of the trading range, could offer some support to the commodity. Nevertheless, the XAU/USD pair remains vulnerable to further slippage unless buyers can build a base above the said support levels.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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