Gold holds near $4,000 ahead of Fed decision as recovery remains tentative

• Gold moves back above $4,000 as Oil retreats on Middle East diplomatic efforts.
• Wednesday’s Fed monetary policy decision is the next focus for traders.
• A near-oversold RSI and negative MACD keep the technical outlook bearish.

At around $4,016 at the time of writing, Gold (XAU/USD) is up 0.50% on Monday, consolidating modest gains after last week’s sharp sell-off took it to $3,975, the lowest since August. Lower Oil prices are lending support as traders respond to diplomatic initiatives aimed at reducing tensions in the Middle East.

Talks between Iranian leaders and officials from Saudi Arabia, Pakistan and Turkey, the three Mecca Pact members, are taking place in Tehran on Monday, Reuters reported. 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 earlier round of efforts to reduce regional tensions. Following those talks, Monday’s meeting comes as West Texas Intermediate (WTI) Oil slips to about $100.39 per barrel, down from Friday’s $103.28, its highest since May. 

Last week’s loss of around 4% was Gold’s largest weekly fall since June. Rising Oil prices strengthened expectations of further Federal Reserve (Fed) tightening, more than offsetting support from lower US Treasury yields and a weaker US Dollar (USD). Demand for government bonds, fuelled by concerns about AI-related investments, weighed on Treasury yields. Some traders may also have sold Gold to cover losses elsewhere amid the broader equity sell-off.

Gold’s rebound is being constrained as the US Dollar and US Treasury yields stop falling at the start of the week. The benchmark 10-year US Treasury yield is near 4.99%, while the US Dollar Index (DXY), a measure of the Greenback against a basket of six major currencies, stands at around 101.83.

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 decision.

An unchanged interest rate range of 3.75%-4.00% is widely anticipated when the Fed’s two-day meeting ends on Wednesday. Gold buyers may nevertheless find little comfort in a pause if policymakers leave open the possibility of another rise in December. According to the CME FedWatch Tool, traders assign around a 79% probability to a hike.

Fed expected to hold rates as above-target inflation raises December hike risk

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." Against that backdrop, TD Securities "expect the Fed to hike two more times (December and March)," pointing out that "inflation remains above target while risks are growing." Beyond early next year, incoming price data will be central to the policy outlook, with the analysts adding that "the evolution of inflation data will determine the extent and pace of hikes later in the cycle,".

Technical analysis: Gold’s upside meets resistance at the lower Bollinger Band

With XAU/USD trading beneath the lower Bollinger Band at $4,020 on the daily chart, the near-term outlook remains bearish. At 35, the Relative Strength Index (RSI) is only just above oversold territory, and the Moving Average Convergence Divergence (MACD) histogram is still negative. Together, the indicators suggest continued downward pressure rather than a clear exhaustion of the recent decline.

The lower Bollinger Band around $4,020 provides the first resistance, ahead of the middle band near $4,131 and the upper band around $4,241. If prices establish a sustained break above these levels, a recovery towards the $4,400-$4,500 area could follow, with $4,700 the next level beyond that.

Initial support is found in the $3,975-$3,950 area. Should 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.)