Gold Retreats Ahead of Fed Decision as Dollar Strengthens

Key Moments

Fed Expectations Keep Gold Under Pressure

Gold (XAU/USD) is under selling pressure below $4,050 in early European trading on Wednesday, ending a two-session winning streak ahead of a closely watched Federal Reserve policy announcement. The Fed is scheduled to release its rate decision later in the day and is broadly anticipated to keep interest rates unchanged. Market attention is firmly on the accompanying policy statement and Fed Chair Kevin Warsh’s remarks during the press conference that follows.

Traders are also positioning ahead of key US macroeconomic releases on Thursday, including the Advance Q3 GDP report and the Personal Consumption Expenditures (PCE) Price Index. These data points are expected to offer further guidance on the Fed’s policy trajectory and could be pivotal for near-term US Dollar dynamics and demand for gold, which does not provide yield.

According to the CME Group’s CME FedWatch Tool, market participants are currently assigning more than an 80% probability that the Fed will raise rates again in December. Persistent inflation concerns linked to elevated energy prices reinforce the case for additional tightening, limiting the appeal of gold by increasing the opportunity cost of holding the metal.

BNY Markets: October Pause, December in Focus

Strategists at BNY Markets are broadly aligned with current market pricing, expecting the Fed to hold rates steady this week. 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.”

At the same time, BNY warns that “we do expect at least one dissent, if not more, in favor of raising rates.” They argue that “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.”

Looking to the press conference, the strategists add 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.”

Geopolitical Risks Bolster Dollar, Weigh on Bullion

Geopolitical risk remains a key theme, with investors wary of a possible escalation of tensions in the Middle East. The Wall Street Journal reported on Tuesday that the US has instructed several Gulf Arab states to prepare for a short and intense military operation against Iran after the November 3 midterm elections.

In a further sign of regional strain, Iran-backed Houthis in Yemen said they targeted Saudi Arabia’s defense ministry in Riyadh with a ballistic missile and described the strike as direct. At the same time, US–Iran talks remain stalled, contributing to a renewed increase in crude oil prices. This backdrop has supported the safe-haven US Dollar, which is holding near a two-week high, and has added pressure on gold prices.

Even so, XAU/USD is trading comfortably above the three-month low set earlier this week, a factor that argues for caution among aggressive bears. Overall, however, the current fundamental environment suggests that the prevailing bias for the metal remains tilted to the downside, with rallies likely to encounter selling interest.

XAU/USD – Intraday Technical Picture

On the intraday chart, XAU/USD is hovering just above the 100-hour Exponential Moving Average (EMA) at $4,044.21, which is providing initial support and helping to limit immediate downside risk. The Relative Strength Index (RSI) sits around 55, indicating only mild bullish momentum at this stage.

However, the Moving Average Convergence Divergence (MACD) has turned negative, signaling that the recent upside push may be losing steam as the market consolidates prior gains. The metal also failed overnight to sustain a move above the 38.2% Fibonacci retracement of the latest downswing, a development that encourages caution among buyers.

A decisive move above the 38.2% retracement at $4,063.08 could open the door toward the 50% level at $4,089.75 and the 61.8% retracement at $4,116.43, with additional resistance emerging at $4,154.40 and near the cycle high around $4,202.78. On the downside, a clear break beneath the 100-hour EMA would shift focus to the 23.6% Fibonacci retracement at $4,030.07 and potentially to the structural support area around $3,976.72.