Gold lacks momentum as Fed policy decision approaches

• Two-day Gold recovery stalls ahead of the Fed’s interest rate decision.
• A December hike is in focus as traders await signals from a Fed widely expected to leave rates unchanged.
• $4,000-$3,950 provides immediate support for XAU/USD, which continues to trade below key daily moving averages.

18:00 GMT is the scheduled time for the Federal Reserve’s (Fed) monetary policy announcement. Ahead of the decision, Gold (XAU/USD) has halted its recovery on Wednesday. Falling oil prices supported bullion’s rebound from its lowest levels since July over the past two days. Oil’s renewed advance and a stable US Dollar (USD) are now capping further gains.

Down 0.36% on the day, XAU/USD is trading around $4,046 at the time of writing. Near two-week highs, the US Dollar Index (DXY) is broadly unchanged at around 102.40. The index measures the Greenback against a basket of six major currencies.

A Wall Street Journal report that Washington had warned Gulf states of a possible military operation against Iran after the US midterms has prompted a recovery in oil prices. Up 1.0% on the day, West Texas Intermediate (WTI) is trading at around $100.50 a barrel.

Since the Middle East war began in late February, higher energy costs have sustained elevated inflation pressures. This has driven major central banks, particularly the Fed, to tighten monetary policy. Reaffirming its commitment to bringing inflation back to its 2% target, the US central bank increased interest rates by 25 basis points (bps) in September and indicated a further rise before year-end.

An 85% probability of a December rate increase is priced in by traders, according to the CME FedWatch Tool. For the October meeting, however, policymakers are widely expected to leave rates at 3.75%-4.00%.

Recent US economic data allow the Fed to pause for now, analysts at ABN Amro argue. In their assessment, “combined with the recent softer PCE readings, the labour data remove much of the pressure to hike immediately,” giving policymakers scope to “afford another six weeks to assess whether the latest inflation strength represents persistent pressure or another temporary bump.”

ABN Amro therefore expects the Fed “to hold in October, deliver one final 25bp hike in December, and then keep rates unchanged for an extended period.” The analysts explain their view as follows: “the mix of persistent near-term inflation risk and a cooling labour market argues for patience rather than complacency.”

Policy guidance could move markets more than the rate decision, given that a pause is largely expected. A signal that further increases remain possible could lift the US Dollar and threaten Gold’s $4,000 support. Holding the non-yielding metal becomes more costly in opportunity-cost terms when interest rates rise. Conversely, a less hawkish message could weaken the Greenback, allowing bullion a short-term relief rally.

Technical analysis: Daily moving averages cap XAU/USD

Sellers retain control on the daily chart, with XAU/USD below its 50-day, 100-day and 200-day Simple Moving Averages (SMAs). The near-term bias therefore remains bearish. At 40, the Relative Strength Index (RSI) signals limited buying momentum. Meanwhile, the Moving Average Convergence Divergence (MACD) is still negative, indicating continued downward pressure.

The 100-day SMA near $4,219 is the first upside hurdle, with the 50-day SMA at $4,288 next. If the recovery gathers strength, attention could turn to horizontal resistance at $4,400, followed by the 200-day SMA around $4,503.

Immediate downside support lies in the $4,000-$3,950 zone; a breach would clear the way for a deeper pullback. Any rebound is likely to face difficulty while the price remains beneath the cluster of daily moving averages.

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