Gold is briefly regaining $4,300 early Tuesday, looking to build on a tepid recovery from six-week troughs near $4,250. Traders are monitoring the widening conflict in the Middle East ahead of the two-day US Federal Reserve (Fed) monetary policy meeting later in the day.
Gold remains vulnerable heading into the Fed meeting
Despite the latest upswing, Gold remains vulnerable to further downside amid escalating geopolitical tensions in the Gulf, elevated Oil price-driven inflation concerns, and hawkish bets around the Fed’s policy outlook.
On Monday, “Yemen’s Iran-backed militant group, Houthis, launched a new attack on Saudi Arabia after Riyadh blamed Iran-backed fighters in Iraq for an attack on the kingdom’s east-west pipeline. Gulf Arab states also postponed planned talks with Iran,” per Reuters.
Intensifying concerns over the US-Iran war translating into a full-fledged regional conflict in the Middle East and the resulting surge in Oil prices continue to keep the US Dollar (USD) underpinned near weekly highs against its major currency rivals. That, in turn, remains a risk for Gold’s recovery.
The Greenback also capitalizes on investors’ doubts about the rapid development and usage of artificial intelligence (AI), particularly after calls by leading industry figures to slow its development.
Further, a 92% probability of the Fed hiking rates this week, following a few upside surprises in the August inflation report and blockbuster Nonfarm Payrolls (NFP) data, remains supportive of the recent USD uptrend, with the benchmark US 10-year Treasury bond yields topping the 5% key level for the first time since 2023.
Strategists at Scotiabank observe that recent market dynamics justify the Dollar’s firm tone into the FOMC meeting, noting that “in recent years, swaps pricing which indicated 70% or higher risk of a Fed rate move has been a near perfect indicator of a policy move, so dollar gains in response to swaps pricing is understandable.” They caution, however, that “there are still some risk around the outlook,” with the balance of scenarios skewed to how the Fed communicates its next steps. In their view, “an unchanged decision from the Fed would be a shock for markets and a clear negative for the USD,” while even a “dovish” hike “which does not obviously commit to additional moves would also likely weigh on the USD.” Against this backdrop, Scotiabank judges that “the DXY is about fairly priced for where front-end spreads are right now,” and argues that “further DXY gains—holding above the 100 level—will need the support of a significant move in yield differentials,” adding that “it’s not clear to us at this point that Fed is prepared to lift rates to that extent.”
That said, all eyes are now on the Fed’s view on future rate hikes, which will be highlighted by the Summary of Economic Projections (SEP), the so-called Dot Plot, considering that a rate hike and Chairman Kevin Warsh’s limited words are a given.
In the meantime, Middle East developments and position readjustments could drive Gold price action, leaving the bright metal subject to volatility.
Gold price technical analysis: Daily chart
In the daily chart, XAU/USD trades at $4,310.80, holding a bearish near-term bias as it sits below the 21-day and 100-day simple moving averages (SMAs) while only modestly above the 50-day SMA. The 14-day Relative Strength Index around 45 keeps a slightly negative tone, suggesting sellers retain the upper hand unless price can reclaim overhead moving-average barriers.
On the topside, initial resistance is aligned with the 100-day SMA near $4,329.01, ahead of a stronger cap at the 21-day SMA around $4,450.09, while the 200-day SMA near $4,539.58 forms a broader bearish line in the sand. On the downside, the 50-day SMA at $4,275.85 offers first support; a clear break below this level would open the door to deeper corrective losses toward prior horizontal levels not yet in play on the current moving-average map.
(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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