Gold consolidates near $4,000 as recovery remains fragile ahead of Fed decision

• Gold reclaims $4,000 as Middle East diplomatic efforts prompt a pullback in Oil prices.
• Traders await the Fed's monetary policy announcement scheduled for Wednesday.
• Technical indicators remain bearish, with RSI near oversold territory and MACD in negative territory.

Gold (XAU/USD) consolidates modest gains on Monday after last week’s sharp decline pushed the metal to $3,975, its lowest level since August. A pullback in Oil prices offers support as traders react to diplomatic efforts to ease tensions in the Middle East. At the time of writing, XAU/USD trades around $4,016, up 0.50% on the day.

Reuters reported that officials from Saudi Arabia, Pakistan and Turkey, the three Mecca Pact members, are holding talks with Iranian leaders in Tehran on Monday. Iranian Foreign Ministry spokesman Esmaeil Baghaei said the discussions will cover Israel’s expansionist policies, developments in Lebanon and the US war against Iran.

The meeting follows talks between Qatari mediators and Iranian officials in Tehran on Sunday as part of efforts to ease regional tensions. West Texas Intermediate (WTI) Oil eases to around $100.39 per barrel after reaching $103.28 on Friday, its highest level since May. 

The metal lost around 4% last week, its steepest weekly decline since June, as rising Oil prices reinforced expectations of further Federal Reserve (Fed) tightening, outweighing support from falling US Treasury yields and a softer US Dollar (USD). Treasury yields came under pressure as concerns over AI-related investments drove demand for government bonds. The broader equity sell-off may also have prompted some traders to sell Gold to cover losses elsewhere.

The US Dollar and US Treasury yields pause their decline at the start of the week, limiting Gold’s recovery. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 101.83, while the benchmark 10-year US Treasury yield stands near 4.99%.

Attention now turns to this week’s Federal Reserve (Fed) monetary policy announcement, which could determine whether Gold holds above the $4,000 psychological mark or faces another round of selling.

The Fed is widely expected to leave interest rates unchanged at 3.75%-4.00% when its two-day meeting concludes on Wednesday. However, a pause may offer little reassurance to Gold buyers if policymakers keep the door open to another increase in December, with traders pricing in around a 79% probability of a hike, according to the CME FedWatch Tool.

Fed seen on hold now but December hike risk builds as inflation stays above target

According to TD Securities, analysts don't expect "much new communication from the FOMC or Chair Warsh." In their view, "a hold in October will make a December hike all the more likely," particularly after the "upside surprise in September CPI," which underscores that "inflation risks are still pertinent." TD Securities therefore "expect the Fed to hike two more times (December and March)," noting that "inflation remains above target while risks are growing." They add that "the evolution of inflation data will determine the extent and pace of hikes later in the cycle," suggesting that incoming price figures will be crucial in shaping the policy path beyond early next year.

Technical analysis: Lower Bollinger Band caps upside

On the daily chart, XAU/USD maintains a bearish near-term bias as prices hover below the lower Bollinger Band at $4,020. The Relative Strength Index (RSI) at 35 sits just above oversold territory, while the Moving Average Convergence Divergence (MACD) histogram remains negative; both indicators hint at persistent downside pressure rather than a decisive exhaustion of the recent slide.

On the upside, initial resistance emerges at the lower Bollinger Band near $4,020, followed by the middle band around $4,131 and the upper band near $4,241. A sustained break above these levels could open the door for a recovery toward the $4,400-$4,500 zone, followed by $4,700.

On the downside, immediate support lies in the $3,975-$3,950 region. A decisive break below this zone could trigger a deeper decline toward the $3,900 psychological mark, followed by $3,800.

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