Gold gains some positive traction as USD bulls turn cautious ahead of Fed rate decision
- Gold reverses a modest Asian session dip on Wednesday as US Dollar bulls pause for a breather.
- Fed rate hike bets, surging US bond yields and geopolitical risks should limit deeper USD losses.
- Any meaningful appreciation for the bullion seems limited ahead of the key FOMC rate decision.
Gold (XAU/USD) attracts some dip-buyers near the $4,275 region during the Asian session on Wednesday, though the upside potential seems limited. The US Dollar (USD) pauses for a breather after touching a two-week high and offers some support to the commodity. Traders, however, might refrain from placing aggressive directional bets heading into the key central bank event.
The US Federal Reserve (Fed) is scheduled to announce its decision later today and is widely expected to raise interest rates by 25 basis points (bps) at the conclusion of its September 15–16 meeting. The focus, meanwhile, will be on the Fed's updated economic projections, which include the so-called dot plot. Apart from this, Fed Chair Kevin Warsh's comments during the post-meeting press conference will be scrutinized for cues about the future policy path. The outlook, in turn, will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the non-yielding Gold.
Meanwhile, energy-driven inflation risks underpin prospects for further tightening by the Fed. In fact, crude oil prices shot to a fresh high since May 20 on Tuesday amid growing concerns about supply disruption in the Middle East. Adding to this, a surge in public and corporate borrowing led to an extended global bond selloff, pushing the yield on the benchmark 10-year US Treasury bond beyond the 5% threshold for the first time since 2023 and to its highest level since 2007. Adding to this, escalating Middle East tensions should continue to underpin the safe-haven USD, which might cap the Gold price.
In the latest developments, Saudi Arabia issued security alerts over a range of territory – including the holy city of Mecca and the second-largest city, Jeddah – following a week of attacks from Iran-aligned Houthis in Yemen. The Saudi-led coalition has promised to respond “firmly” to missile and drone strikes by the Houthi group, raising the risk of further escalation of the regional conflict. Moreover, the US Central Command said it has redirected 103 commercial vessels as part of its blockade on Iranian maritime trade through the Strait of Hormuz, supporting oil prices and favouring USD bulls.
XAU/USD daily chart
Technical Analysis
The precious metal has been showing some resilience below the 50-day Simple Moving Average (SMA) and is now trading just above the 50% retracement level of the July-August upswing. That said, momentum oscillators have softened, with the Moving Average Convergence Divergence (MACD) in negative territory and the Relative Strength Index (RSI) hovering just below the 50 line. This, in turn, suggests that the upside traction is moderating even as the Gold stays above a key moving average.
Hence, any further move up could confront initial resistance at the 38.2% Fibonacci retracement near $4,413, which is followed by a stronger hurdle at the 23.6% retracement around $4,520, where prior supply could re-emerge. On the downside, immediate support aligns first at the 50.0% retracement close to $4,326, reinforced by the 50-day SMA at about $4,280. A break below the latter would expose the 61.8% retracement near $4,240 and deeper retracement supports at approximately $4,116 and $3,959.
(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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