Gold weakens as geopolitics support USD ahead of FOMC meeting

• Gold slides below $4,050 during the Asian session on Tuesday, filling the weekly bullish gap.
• Geopolitical risks remain in play, underpinning the USD and exerting pressure on the bullion.
• The downside seems cushioned as USD bulls opt to wait for the crucial FOMC policy meeting.

Gold (XAU/USD) attracts some follow-through selling after the previous day's failure to find acceptance above $4,100, weakening below the $4,050 level during the Asian session on Tuesday. The downside potential, however, seems limited as the US Dollar (USD) bulls pause ahead of the crucial two-day FOMC policy meeting. Investors will look for cues about the US Federal Reserve's (Fed) future policy path, which will play a key role in driving the USD demand and providing a fresh directional impetus to the non-yielding yellow metal.

Heading into the key central bank event risk, traders pared Fed rate-hike bets amid renewed hopes for US-Iran diplomacy to end a five-month-old conflict, which led to the overnight slump in oil prices and eased inflation fears. In fact, the US paused its bombing campaign against Iran following roughly two weeks of strikes. Moreover, US President Donald Trump said on Monday the US was having good talks with Iran and that there was a chance of a resolution. This raised hopes of pulling the US and Iran back to the negotiating table, and normalizing of Middle East energy flows.

Trump, however,  warned that US strikes would resume if the negotiations failed to deliver. Furthermore, Saudi Arabia, Jordan and Iraq reported drone attacks on Monday, keeping a lid on the optimism. Adding to this, concerns about disruptions to global energy supplies support oil prices and the safe-haven USD. The spotlight shifted to the Bab el-Mandeb Strait after Yemen’s Iran-backed Houthis announced a maritime blockade against Saudi Arabia and attacked Saudi oil installations along the coast of the Red Sea. Moreover, traffic through the Strait of Hormuz remains restricted.

The fundamental backdrop seems tilted firmly in favor of USD bulls, which backs the case for further downside for Gold. Traders, however, might refrain from placing aggressive bets and opt to wait for the outcome of the highly-anticipated FOMC meeting on Wednesday. Hence, it will be prudent to wait for strong follow-through selling and acceptance below the $4,000 psychological mark before placing fresh bearish bets on the XAU/USD pair.

XAU/USD daily chart

Gold’s bearish technical setup backs the case for deeper losses; break below $4,000 awaited

Against the backdrop of the recent breakdown below the 200-day Simple Moving Average (SMA), the range-bound price action since June 19 might still be categorized as a bearish consolidation phase. Meanwhile, momentum indicators are mixed. In fact, the Relative Strength Index (RSI) hovers just below the 50 line near 45, hinting at lacklustre buying conviction, while the Moving Average Convergence Divergence (MACD) turns higher in positive territory. This suggests that any rebounds are still corrective within a broader downside context as long as Gold holds under the long-term average.

Nevertheless, the precious metal looks vulnerable to further slippage unless buyers quickly defend the recent lows around the psychological $4,000 handle. On the topside, the top boundary of the trading range near the $4,200 mark is the key resistance to beat. A daily close above this barrier 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.

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