Why is gold edging lower as USD reaches a two-week high ahead of the FOMC decision?

• A firm USD leaves Gold struggling to extend the gains recorded over the previous two days.
• The safe-haven dollar remains supported by geopolitical uncertainty and expectations of a Fed rate hike.
• For fresh direction, traders await the FOMC interest rate decision and major US economic releases.

Gold (XAU/USD) ends its two-day winning run ahead of the crucial central bank event, retreating from the weekly peak near $4,070 reached in Wednesday's Asian session. With the US Federal Reserve (Fed) widely expected to leave interest rates unchanged when it announces its policy decision later today, attention will centre on the policy statement and remarks from Fed Chair Kevin Warsh at the post-meeting press conference.

Further clues on the Fed's policy trajectory will come from Thursday's major US economic releases: the Advance Q3 GDP report and the Personal Consumption Expenditures (PCE) Price Index. By shaping near-term movements in the US Dollar (USD), that outlook will also provide meaningful direction for non-yielding gold. For now, traders assign a probability of over 80% to another increase in US borrowing costs in December, according to CME Group's CME FedWatch Tool. High energy prices are also fuelling inflation concerns and reinforcing the prospect of additional Fed tightening, limiting the upside for bullion, which offers no yield.

Will an October Fed pause reinforce December tightening expectations?

An unchanged Fed policy decision this week is also the expectation of BNY Markets strategists, consistent with market pricing. They note that “in line with the market, we don’t foresee a rate hike in October and prefer to place our expectations for further tightening on the December meeting.” BNY nevertheless warns that “we do expect at least one dissent, if not more, in favor of raising rates.” Describing the likely market response, the strategists say, “if we’re right, and there is an objection (or two), we would expect the market to interpret Wednesday’s decision hawkishly, solidifying the expectation of a hike at the end of the year.” On the forthcoming press conference, they say that “we don’t see any preview of what we expect to be a December hike, given Chair Kevin Warsh’s disinclination to provide guidance on future policy moves. Nevertheless, we think that market expectations for a December hike will be solidified.”

Concerns that Middle East tensions could intensify are keeping the geopolitical risk premium intact. According to a Tuesday report in The Wall Street Journal, the US has advised several Gulf Arab countries to prepare for a brief, intense military campaign against Iran after the 3 November midterm elections. Yemen's Iran-backed Houthis also claimed a direct hit on Saudi Arabia's defence ministry in Riyadh using a ballistic missile. With US–Iran talks still at an impasse, crude oil prices have advanced further, helping the safe-haven dollar retain its recent sharp gains to a two-week high. This is exerting additional pressure on Gold.

Despite the pullback, XAU/USD remains well above the three-month trough recorded earlier this week, suggesting that aggressive bears should remain cautious. Even so, the fundamental conditions outlined above favour further declines in the precious metal, with attempts at a recovery more likely to attract selling.

XAU/USD: 1-hour price chart

What does the technical outlook suggest?

Immediate selling pressure is being cushioned by the 100-hour Exponential Moving Average (EMA) at $4,044.21, with XAU/USD trading just above it. Bullish momentum nevertheless appears limited, as the Relative Strength Index (RSI) stands around 55. At the same time, the Moving Average Convergence Divergence (MACD) has turned negative, suggesting that efforts to advance may be weakening as the market absorbs the earlier rise. Bulls also have reason for caution after prices failed overnight to sustain a move above the 38.2% Fibonacci retracement of the latest decline.

A sustained move above the 38.2% Fibo. resistance at $4,063.08, however, could open the way towards the 50% level at $4,089.75, followed by the 61.8% retracement at $4,116.43. Further resistance lies at $4,154.40 and the cycle peak near $4,202.78. Conversely, a decisive breach of immediate support at the 100-hour EMA would bring the 23.6% Fibo. retracement at $4,030.07 into focus. A more pronounced decline could then target the structural floor around $3,976.72.

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