Gold edges lower on Fed-driven USD strength as markets await Trump-Xi meeting
- Gold attracts fresh sellers on Wednesday as the Fed’s hawkish stance continues to underpin the USD.
- US bond yields remain depressed amid easing inflation fears and could help limit losses for the bullion.
- Traders now look to flash global PMIs for some impetus ahead of the Trump-Xi meeting on Thursday.
Gold (XAU/USD) struggles to capitalize on the previous day's goodish rebound from sub-$4,300 levels and meets with a fresh supply during the Asian session on Wednesday. The US Dollar (USD) preserves its recent strong gains to the highest level since July 30, touched on Tuesday, amid the Federal Reserve's (Fed) hawkish outlook, which is seen as a key factor undermining the non-yielding bullion.
The US central bank raised interest rates for the first time in over three years at the conclusion of the September policy meeting and signaled one more hike this year. Moreover, St. Louis Fed President Alberto Musalem and Chicago Fed President Austan Goolsbee explicitly backed the case for further policy tightening as inflation risks remain elevated. Adding to this, Boston Fed President Susan Collins and Richmond Fed President Tom Barkin both left the door open on future hikes to rein in inflation. According to the CME Group's FedWatch Tool, traders see a 90% chance of a rate hike in December. This, along with persistent geopolitical uncertainties, continues to act as a tailwind for the safe-haven Greenback.
In the latest developments surrounding the Middle East crisis, US President Donald Trump told the United Nations General Assembly (UNGA) that he faces a big decision on whether to make a deal with Iran or "annihilate" the Islamic Republic if the conflict went unresolved. Furthermore, tighter US sanctions intended to cripple Iranian aviation come into force on Wednesday. Meanwhile, Iranian Foreign Minister Abbas Araghchi met with US Special Envoy Steve Witkoff to restate Tehran's conditions for reopening the Strait of Hormuz. Trump told reporters the discussions went well, but did not offer further details. This keeps the geopolitical risk premium in play and favors USD bulls, weighing on the Gold price.
That said, US bond yields remain depressed below multi-year highs as the recent decline in crude oil prices helps cool fears of runaway inflation. This might keep a lid on the USD and limit losses for the precious metal. Traders now look to the release of flash global PMIs to gauge the health of major developed economies. Apart from this, speeches from influential FOMC members, along with incoming geopolitical headlines, will drive USD demand and produce short-term opportunities around the Gold price. The focus, however, will remain glued to a crucial meeting between US President Donald Trump and his Chinese counterpart Xi Jinping on Thursday, which should provide some meaningful impetus to the precious metal.
XAU/USD daily chart
Technical Analysis
The XAU/USD pair holds a capped tone below the 100-period Exponential Moving Average (EMA) at $4,369. The commodity, however, holds just above the 50.0% retracement of the $3,934.91–$4,694.41 leg. Moreover, momentum indicators are mixed, as the Relative Strength Index (RSI) at 47.86 has eased toward neutral and the Moving Average Convergence Divergence (MACD) shows a negative reading at -9.80, hinting at waning bullish pressure. This keeps the near-term bias tilted to the downside while the Gold remains under the EMA.
Meanwhile, immediate support is seen at the 50.0% retracement near $4,314, followed by the deeper Fibonacci levels at $4,225 (61.8%) and $4,097 (78.6%), before the structural floor at the prior swing low of $3,934. On the topside, initial resistance emerges at the 100-period EMA at $4,369, ahead of the 38.2% retracement at $4,404. A daily close above these levels would be needed to alleviate bearish pressure and open the way toward the higher resistance band at $4,515 and, ultimately, the cycle high area around $4,694.
(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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