Gold turns cautious as Fed decision briefly overshadows Middle East tensions
- Gold holds above $3,380 as the US Dollar steadies ahead of the key Fed decision.
- Fed projections may outweigh Israel-Iran risks if they suggest higher interest rates for a longer period.
- A dovish Fed could lift Gold, while a hawkish tone risks a breakdown in XAU/USD.
Gold (XAU/USD) is holding steady near $3,385 on Wednesday, supported by persistent geopolitical tensions and investor caution ahead of the Federal Reserve’s (Fed) policy decision.
At the time of writing, price action remains stable above $3,380, with traders focused on the Fed’s rate outlook, updated economic projections, and Fed Chair Jerome Powell’s tone—any of which could trigger sharp moves in both the US Dollar and Gold later in the session.
Recent comments from US President Donald Trump have further fueled safe-haven flows. On Tuesday, Trump returned early from the G7 summit in Canada to meet with his national security team at the White House to discuss the potential scale of US involvement in the escalating Israel–Iran conflict.
The Wall Street Journal reported that while “a strike was just one of the options that was discussed,” no final decision had been made on military action. In a post on Truth Social, Trump wrote: “We now have complete and total control of the skies over Iran,” doubling down on his demand for “unconditional surrender.” He also dismissed the idea of a ceasefire, stating he wanted a “real end” to Iran’s nuclear ambitions. These developments have added to market unease, reinforcing Gold’s appeal as a hedge against rising geopolitical risk.
Daily digest market movers: Fed rate expectations take the spotlight
- According to the CME FedWatch Tool, analysts expect the Fed to keep interest rates steady, remaining in the 4.25%-4.50% range during the next two meetings, with a 58% chance of a rate cut in September.
- The Summary of Economic Projections (SEP) and the updated dot plot will reveal how policymakers view inflation, growth, and the likely path of interest rates for the remainder of the year. Investors will closely monitor any changes in inflation forecasts and interest rate expectations, as these will shape the outlook for potential rate cuts. In the last dot plot, policymakers anticipated two rate cuts for 2025.
- Powell’s tone during the press conference will be key, especially his comments on recent data and whether current policy remains appropriate, taking into account the increasing uncertainty stemming from global geopolitical risks. Dovish signals could weigh on the US Dollar and support Gold, while a hawkish tone may strengthen the Dollar and pressure Gold.
- Because Fed policy influences borrowing costs, risk appetite, and currency strength, any shift in tone or projections can have a direct impact on demand for safe-haven assets such as Gold.
- In times of economic turmoil or geopolitical uncertainty, Gold becomes a favored safe-haven asset due to its intrinsic value and lack of counterparty risk, especially when trust in traditional financial systems erodes.
- Central banks have significantly increased their Gold holdings, acquiring over 1,000 tonnes annually in each of the last three years—more than double the average from the previous decade, according to the World Gold Council’s 2025 Central Bank Gold Reserves survey.
Gold technical analysis: XAU/USD turns cautious below $3,400
Gold (XAU/USD) is trading just below the psychological $3,400 level, stable as traders await the Federal Reserve’s rate decision and updated economic projections. Price action is holding near $3,380, with immediate support coming from the 23.6% Fibonacci retracement level at $3,371.
The broader trend remains constructive, supported by the 20-day Simple Moving Average (SMA) at $3,346.
A decisive break above $3,400 could pave the way for a test of the $3,440-$3,452 resistance zone, which has repeatedly capped upside over the past three trading days and represents the upper range of the recent consolidation.
Gold (XAU/USD) Daily Chart
To the downside, a drop below $3,371 would shift focus toward the next key support at $3,360, followed by the confluence area near $3,320–$3,308, where the 50-day MA and a deeper Fibonacci retracement cluster strengthen the zone's importance. A break below the moving averages could signal a deeper correction.
The Relative Strength Index (RSI) is near 56, indicating a mildly bullish bias and room for further upside if the Fed signals a dovish shift or rate cuts ahead. Conversely, a reaffirmation of its hawkish stance could cap gains and pressure Gold lower.
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.
Economic Indicator
Fed Monetary Policy Statement
Following the Federal Reserve's (Fed) rate decision, the Federal Open Market Committee (FOMC) releases its statement regarding monetary policy. The statement may influence the volatility of the US Dollar (USD) and determine a short-term positive or negative trend. A hawkish view is considered bullish for USD, whereas a dovish view is considered negative or bearish.
Read more.Next release: Wed Jun 18, 2025 18:00
Frequency: Irregular
Consensus: -
Previous: -
Source: Federal Reserve
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