Gold slides to a fresh monthly low ahead of the Fed decision
- Gold drops more than 1% to its lowest level since February 18.
- Markets scale back interest rate cut expectations amid Oil price surge.
- Technically, bearish momentum builds as Gold slips below the $5,000 mark and the 50-day SMA.
Gold (XAU/USD) trades with a downside bias on Wednesday as the US Dollar (USD) steadies ahead of the Federal Reserve’s (Fed) interest rate decision due at 18:00 GMT. At the time of writing, XAU/USD is trading around $4,926, down 1.60% on the day after closing virtually unchanged over the past two trading days.
Higher-for-longer rates narrative gains traction ahead of Fed decision
The US central bank is expected to keep its benchmark interest rate unchanged at 3.50%-3.75% for a second consecutive meeting. However, the focus remains firmly on forward guidance rather than the decision itself, as markets have sharply trimmed rate-cut bets in recent weeks amid escalating Middle East tensions and the resulting rise in oil-driven inflation risks.
The Fed’s balancing act is becoming increasingly challenging as inflation remains sticky above the 2% target, with Consumer Price Index (CPI) rising 2.4% YoY in February, while elevated Oil prices add fresh upside risks.
At the same time, US labor market conditions remain soft, with the economy losing 92,000 jobs in February and the unemployment rate ticking up to 4.4%, despite earlier signs of stabilization.
With both sides of the central bank’s dual mandate under pressure, investors will closely watch Fed Chair Jerome Powell’s post-meeting remarks for signals on how policymakers assess the inflation outlook amid an uncertain geopolitical environment.
Attention will also turn to the updated Summary of Economic Projections (SEP), particularly the dot plot, to see whether the Fed maintains its earlier projection of one rate cut in 2026 or shifts toward a more restrictive stance.
A hawkish hold could exert further pressure on Gold by reinforcing higher-for-longer rate expectations and reducing the appeal of the non-yielding metal, while any signal that rate cuts remain on the table may help the metal stage a recovery.
Ahead of the Fed decision, the US economic calendar features the Producer Price Index (PPI).
Elsewhere, traders continue to monitor the US-Israel war with Iran, with no signs of easing tensions as strikes intensify across the Middle East. Iran’s targeting of energy infrastructure is heightening global supply concerns, while shipping through the Strait of Hormuz remains heavily disrupted, with most traffic still effectively halted.
Technical analysis: XAU/USD technical outlook turns bearish
From a technical perspective, downside risks are building as Gold slips below the $5,000 mark following a breakdown from a bearish flag pattern on the daily chart. Prices have now moved below the 50-day Simple Moving Average (SMA) near $4,975, signaling a loss of near-term support and increasing downside pressure.
Despite this weakness, the broader uptrend remains intact as the metal continues to hold well above the rising 100-day SMA around $4,595.
Momentum indicators are turning negative. The Relative Strength Index (RSI) has slipped to around 45 and is trending lower from mid-range, suggesting building bearish pressure. Meanwhile, the Moving Average Convergence Divergence (MACD) remains below the Signal line in negative territory, with a widening negative histogram reinforcing fading upside momentum.
A sustained break below the 50-day SMA could accelerate losses toward the 100-day SMA. On the upside, the $4,975 level now acts as immediate resistance, followed by the $5,000-$5,100 region, while a clear move above $5,200 would be needed to revive the broader uptrend.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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