- Gold struggles to register any meaningful recovery and hangs near a multi-week low.
- Fed rate hike bets and inflation risk keep US bond yields elevated, supporting the USD.
- Geopolitical risks further underpin the safe-haven buck, capping gains for the bullion.
Gold (XAU/USD) trades with a mild negative bias below the $4,300 mark heading into the European session on Tuesday and remains close to an over one-month low, which it touched the previous day. The downside, however, remains cushioned as traders opt to move to the sidelines ahead of the crucial two-day FOMC policy meeting, starting later today.
The US Federal Reserve (Fed) is scheduled to announce its decision on Wednesday, and the latest US inflation figures, released last week, lifted bets for an imminent interest rate hike. The focus, however, will be on updated economic projections, including the so-called dot plot, and Fed Chair Kevin Warsh's comments during the post-meeting press conference. Investors will look for more cues about the Fed's future policy path, which will play a key role in influencing the US Dollar (USD) price dynamics and provide a fresh directional impetus to the non-yielding Gold.
Heading into the key central bank event, inflation risks stemming from higher energy prices underpin prospects for further Fed policy tightening. Adding to this, a surge in public and corporate borrowing contributed to an extended global bond selloff. This, in turn, lifted the yield on the benchmark 10-year US Treasury bond above the 5% threshold for the first time since 2023. Adding to this, persistent geopolitical uncertainties keep the safe-haven USD close to a nearly two-week high, touched on Monday, and should cap any further gains for Gold.
In the latest developments surrounding the Middle East crisis, Iran-backed Houthis in Yemen carried out a large-scale missile and drone attack on a Saudi air base in Khamis Mushait on Monday. Moreover, Iranian Supreme National Security Council Secretary Mohsen Rezaei rejected the prospect of immediate negotiations with the US, saying that Tehran will not return to talks until its conditions are met. This dampens hopes for a diplomatic solution to end the war, favoring USD bulls and warranting caution before positioning for any further upside for the Gold price.
XAU/USD daily chart
Technical Analysis
The XAU/USD pair holds a slight neutral-to-capped tone as it sits just under the 50.0% retracement level of the June-August upswing, while still trading above the 50-day Simple Moving Average (SMA), suggesting consolidation rather than a clear trend. Moreover, the Relative Strength Index (RSI) hovers around 45, hinting at subdued momentum. However, the Moving Average Convergence Divergence (MACD) remains in negative territory with a depressed histogram, reinforcing the idea that rallies may struggle unless buyers reclaim overhead Fibonacci resistance.
Meanwhile, a move above the 50.0% retracement around $4,323 could face a strong barrier at the 38.2% Fibo. retracement near $4,412 and then the 23.6% level close to $4,522 if upside pressure builds. On the downside, immediate support is provided by the 50-day SMA at about $4,275, ahead of the 61.8% Fibo. retracement around $4,234. A convincing break below this zone would expose the deeper structural supports at the 78.6% retracement near $4,108 and the prior anchor area around $3,947.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.