- Gold struggles to capitalize on an intraday uptick as the Fed’s hawkish stance caps the upside.
- US bond yields decline further amid easing inflation fears and keep the USD on the defensive.
- Traders await developments surrounding the Middle East crisis before placing directional bets.
Gold (XAU/USD) attracts some sellers following a modest Asian session uptick on Tuesday and slides below $4,350 in the last hour, though the downside seems limited. The US Federal Reserve's (Fed) hawkish outlook is seen as a key factor undermining the non-yielding yellow metal.
In fact, the Fed’s updated Summary of Economic Projections showed that officials expect at least one more rate hike this year. Furthermore, Boston Fed President Susan Collins and St. Louis Fed President Alberto Musalem explicitly backed the case for further policy tightening as inflation risks remain elevated due to a commodity price shock. Meanwhile, the recent pullback in oil prices helped cool immediate inflation fears and drag US bond yields away from multi-year highs. This keeps the US Dollar (USD) capped below its highest level since late July, touched on Friday, and seems to act as a tailwind for the Gold price.
Meanwhile, Iran's Islamic Revolutionary Guard Corps (IRGC) warned on Monday that it would change the geography of the war if the US escalates the conflict. The US, on the other hand, is stepping up economic pressure on Iran, warning that Iranian airlines could effectively be shut out of international aviation from September 23. Adding to this, intensifying fighting between the Iran-backed Houthi group in Yemen and Saudi Arabia keeps the geopolitical risk premium in play, which helps limit the downside for crude oil prices and favors USD bulls. This, in turn, is holding back bulls from placing aggressive bets on gold.
Traders also seem hesitant and opt to wait on the sidelines ahead of a crucial meeting between US President Donald Trump and his Chinese counterpart Xi Jinping on Thursday. In the meantime, headlines coming out of the 81st United Nations (UN) General Assembly could infuse some volatility in financial markets. Apart from this, speeches from influential FOMC members will drive USD demand and provide a fresh impetus to gold. Nevertheless, the aforementioned fundamental backdrop warrants caution before positioning for an extension of the recent bounce from an over one-month low, set last Wednesday.
XAU/USD daily chart
Technical Analysis
The XAU/USD pair holds a mildly bearish near-term bias below the 100-day Exponential Moving Average (EMA) at $4,377. The 38.2% Fibonacci retracement level of the June-August upswing, at $4,410, caps the upside, while the 50.0% retracement at $4,321 lends some support to the precious metal. Momentum indicators are mixed, with the Relative Strength Index (14) hovering near a neutral 48.81 and the Moving Average Convergence Divergence (MACD) below zero and showing a contracting negative profile. This, in turn, hints at fading downside pressure but not yet signaling a sustained recovery.
Meanwhile, a break below the 50.0% retracement level would expose the 61.8% Fibo. level at $4,232 and deeper structural levels at $4,105 and $3,943 if selling extends. On the topside, initial resistance emerges at the 100-day EMA at $4,377 ahead of the 38.2% Fibo. retracement at $4,410, with further barriers seen at $4,521 and the cycle high anchor near $4,699. Only a clear daily close above this EMA-Fibonacci cluster would ease the current bearish tone.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.