$4,000 in Focus: Gold Consolidates Near This Level as Recovery Stays Fragile Ahead of Fed Decision

$4,000 is back within Gold’s reach and has been reclaimed. Middle East diplomacy has prompted Oil prices to retreat.
Wednesday’s Fed monetary policy decision is the next focus for traders.
A near-oversold RSI and negative MACD keep the technical picture bearish.

$4,016 is Gold’s approximate price at the time of writing. XAU/USD is up 0.50% on Monday, consolidating modest gains after last week’s steep sell-off took it to $3,975, the lowest since August. Lower Oil prices are providing support as traders assess diplomatic moves aimed at reducing Middle East tensions.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Talks with Iranian leaders are taking place in Tehran on Monday, Reuters reported, involving officials from Saudi Arabia, Pakistan and Turkey, the three Mecca Pact members. According to Iranian Foreign Ministry spokesman Esmaeil Baghaei, the agenda includes Israel’s expansionist policies, developments in Lebanon and the US war against Iran.

Qatari mediators met Iranian officials in Tehran on Sunday in an effort to reduce regional tensions, ahead of Monday’s meeting. West Texas Intermediate (WTI) Oil has slipped to about $100.39 per barrel, having touched $103.28 on Friday, its highest since May.

Around 4% was wiped off Gold’s value last week, marking its largest weekly fall since June. Higher Oil prices strengthened expectations of additional Federal Reserve (Fed) tightening. That pressure outweighed the support from lower US Treasury yields and a weaker US Dollar (USD). Demand for government bonds, driven by concerns about AI-related investments, pushed Treasury yields lower. Some traders may also have sold Gold to offset losses elsewhere during the broader equity sell-off.

Gold’s rebound is being constrained as the US Dollar and US Treasury yields stabilise at the start of the week following their declines. The US Dollar Index (DXY) is trading at roughly 101.83. It measures the Greenback against a basket of six major currencies. Meanwhile, the benchmark 10-year US Treasury yield is close to 4.99%.

Whether Gold can remain above the psychological $4,000 level or comes under renewed selling pressure could hinge on this week’s Federal Reserve (Fed) monetary policy announcement.

An unchanged interest-rate range of 3.75%-4.00% is widely anticipated when the Fed’s two-day meeting ends on Wednesday. Yet a hold may do little to reassure Gold buyers if policymakers leave another December increase on the table. The CME FedWatch Tool shows traders assigning around a 79% probability to a hike.

79% December hike probability: Fed hold expected as inflation exceeds target

Little fresh guidance is anticipated by TD Securities analysts, who don't expect "much new communication from the FOMC or Chair Warsh." They argue that "a hold in October will make a December hike all the more likely," especially following the "upside surprise in September CPI," which highlights that "inflation risks are still pertinent." On that basis, TD Securities "expect the Fed to hike two more times (December and March)," observing that "inflation remains above target while risks are growing." Beyond early next year, incoming price data will be central to the policy outlook: the analysts add that "the evolution of inflation data will determine the extent and pace of hikes later in the cycle."

$4,020 resistance: Lower Bollinger Band limits Gold’s upside

Below the lower Bollinger Band at $4,020, XAU/USD retains a bearish short-term outlook on the daily chart. At 35, the Relative Strength Index (RSI) remains just above oversold territory, while the Moving Average Convergence Divergence (MACD) histogram is still negative. Together, these signals point to continued downward pressure rather than clear evidence that the recent decline has run its course.

The lower Bollinger Band around $4,020 provides the first resistance level. Above it, the middle band near $4,131 and upper band around $4,241 are the next hurdles. Clearing these levels on a sustained basis could allow a recovery towards $4,400-$4,500, with $4,700 beyond that zone.

The $3,975-$3,950 area offers immediate support. If prices break decisively below it, the decline could extend to the psychological $3,900 level and then $3,800.

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

Gold: Key questions answered

What attracts investors to Gold?

Widely used as both a store of value and a means of exchange, Gold has held an important place throughout human history. Today, its appeal extends beyond its lustre and use in jewellery. The metal is widely regarded as a safe-haven asset, or an investment considered attractive during periods of turmoil. Because it does not depend on a particular issuer or government, Gold is also commonly viewed as a hedge against inflation and currency depreciation.

Which buyers hold the most Gold?

The largest holders of Gold are central banks. To support their currencies during unsettled periods, they typically diversify reserves and purchase Gold to strengthen perceptions of their economies and currencies. Substantial Gold reserves can reinforce confidence in a country’s solvency. World Gold Council data show that central banks increased their reserves by 1,136 tonnes in 2022, worth around $70 billion. That was the largest annual purchase on record. Emerging-economy central banks, including those in China, India and Turkey, are expanding their Gold reserves rapidly.

How does Gold move relative to other assets?

The US Dollar and US Treasuries, both leading reserve and safe-haven assets, have an inverse correlation with Gold. A weaker Dollar typically accompanies a rise in Gold, allowing investors and central banks to diversify their holdings during turbulent periods. Risk assets also tend to move in the opposite direction to Gold. Stock-market gains generally put pressure on the metal’s price, whereas selling in riskier markets tends to support it.

Which factors drive Gold prices?

Many factors can influence Gold prices. Its safe-haven role means geopolitical instability or concern about a deep recession can trigger rapid gains. Since Gold pays no yield, lower interest rates tend to support it, while a higher cost of money usually weighs on the metal. Nevertheless, the US Dollar (USD) drives most price movements because Gold is quoted in dollars (XAU/USD). Dollar strength generally restrains Gold prices; a weaker Dollar is more likely to lift them.