Gold (XAU/USD) held its ground on Tuesday, extending the sideways pattern that has dominated trading for more than a week as investors remain on the sidelines ahead of the Federal Reserve (Fed) interest rate decision on Wednesday.
At the time of writing, XAU/USD is trading around $4,200 after falling to $4,170 in the European trading session.
The two-day Federal Open Market Committee (FOMC) meeting begins later on Tuesday, with traders widely expecting another rate cut following back-to-back “risk-management” cuts in September and October in response to signs of cooling in the labor market.
Market pricing via the CME FedWatch tool points to a nearly 90% probability of a 25 basis point (bps) rate cut, which would lower the federal funds rate to a range of 3.50%-3.75%.
Bullion is getting widespread support from the Fed’s dovish expectations. However, with a rate cut almost all but certain, investors will keep a close eye on further guidance as speculation of a “sharp cut” is rising, underscoring uncertainty over the monetary policy path in 2026.
Market Movers: Fed’s next move under scrutiny amid mixed signals
- The US dollar index (DXY), which tracks the greenback against a basket of six major currencies, is trading around 99.19, extending gains after Monday’s modest recovery and putting mild pressure on gold.
- Even with the almost complete price cut, policy uncertainty remains. “Further policy rate cuts at the December meeting are not a foregone conclusion, far from it,” Fed Chairman Jerome Powell said in a particularly cautious tone at the press conference after the October meeting. Powell also noted a “growing voice” within the committee suggesting it might be better to wait before taking any further steps.
- There is also a notable divide within the committee, with some officials emphasizing rising inflation risks while others are concerned about a gradual cooling of the labor market. The latest personal consumption expenditure (PCE) data and mixed labor indicators are adding to the uncertainty, strengthening the view that the Fed may opt for a more measured approach to additional monetary policy easing as deflation progress slows.
- The US economic docket includes the ADP employment change 4-week average along with JOLTS job openings data for September and October, which will provide new insight into labor-market conditions ahead of the Fed decision.
- Beyond monetary policy, geopolitical risks also remain elevated, with the lack of meaningful progress in Russia-Ukraine peace talks continuing to support gold. After meeting European leaders in London on Monday, Ukrainian President Volodymyr Zelensky said Kiev would share a revised 20-point peace plan with the United States and stressed that there was still no agreement on the issue of territorial concessions, which Moscow continues to insist on.
Technical Analysis: Gold stuck below $4,250 due to neutral momentum
Gold (XAU/USD) continues to trade in a tight range, with buyers repeatedly taking steps around the $4,200-$4,180 area. On the 4-hour chart, the 50-period Simple Moving Average (SMA) is acting as near-term resistance around $4,205, while the 100-period SMA near $4,148 offers a strong downside if the bears attempt a decisive break below the $4,200-$4,180 support zone.
On the positive side, the $4,250 area remains a difficult range where bulls have struggled to gain hold. A sustained break above this range would shift the bias more decisively in favor of buyers and open the door to a retest of the all-time high.
Momentum indicators remain neutral. The Relative Strength Index (RSI) is near 50, indicating a neutral tone that fits in with the current consolidation. Meanwhile, the Moving Average Convergence Divergence (MACD) lines are flat and hovering near the zero mark, indicating a lack of conviction from both bulls and bears as traders wait for a catalyst.
Sona FAQ
Gold has played an important role in human history as it has been widely used as a store of value and medium of exchange. Currently, apart from its luster and use for jewellery, the precious metal is widely viewed as a safe-haven asset, meaning it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and falling currencies because it is not dependent on any specific issuer or government.
Central banks are the largest holders of gold. In their aim to support their currencies in turbulent times, central banks diversify their reserves and purchase gold to improve the perceived strength of the economy and currency. High gold reserves can be a source of confidence for a country’s solvency. Central banks added 1,136 tonnes of gold, worth about $70 billion, to their reserves in 2022, according to World Gold Council data. This is the highest annual purchase since records began. Central banks of emerging economies like China, India and Türkiye are rapidly increasing their gold reserves.
Gold has an inverse relationship with the US dollar and US Treasuries, which are both major reserve and safe-haven assets. When the dollar depreciates, gold rises, helping investors and central banks diversify their assets in turbulent times. Gold is also inversely correlated with risky assets. Stock market rallies weaken the price of gold, while selling in riskier markets benefits the precious metal.
The price may increase due to a variety of factors. Gold’s safe-haven status could cause its price to rise sharply due to geopolitical instability or fears of a deep recession. As a yield-low asset, gold tends to rise with low interest rates, while higher costs of money generally weigh on the yellow metal. Still, most of the moves depend on how the US dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong dollar keeps the price of gold in check, while a weak dollar is likely to push gold prices higher.
