Gold (XAU/USD) extends its sideways consolidative price move through the Asian session on Tuesday and remains confined in a familiar range held over the past week or so. Traders now seem reluctant and opt to move to the sidelines ahead of the FOMC rate decision on Wednesday. The focus will be on updated economic projections, including the so-called dot plot, and Federal Reserve (Fed) Chair Jerome Powell’s post-meeting press conference, which could provide more cues about the future rate-cut path. This, in turn, will drive the US Dollar (USD) and provide a fresh impetus to the non-yielding yellow metal.
In the meantime, firming expectations that the US central bank will lower borrowing costs this week and bets for more rate cuts in 2026 keep a lid on the attempted USD recovery from its lowest level since late October, touched last week. This, along with persistent geopolitical risks stemming from the protracted Russia-Ukraine war and the cautious market mood, might continue to act as a tailwind for the safe-haven Gold. Hence, it will be prudent to wait for strong follow-through selling before confirming that the XAU/USD pair has topped out in the near-term and positioning for any meaningful depreciation move.
Daily Digest Market Movers: Gold bulls not ready to give up as Fed rate cut bets undermine the USD
- The US Personal Consumption Expenditures (PCE) Price Index released last Friday did little to influence expectations for further policy easing by the Federal Reserve (Fed). In fact, traders are currently pricing in an over 85% chance that the US central bank will cut interest rates by 25 basis points at the end of a two-day policy meeting on Wednesday.
- The dovish outlook fails to assist the US Dollar to capitalize on the recent modest recovery move from its lowest level since late October and turns out to be a key factor that acts as a tailwind for the non-yielding Gold. Traders, however, seem reluctant and opt to wait for more cues about the Fed’s future rate-cut path before placing fresh directional bets.
- The yield on the benchmark 10-year US government bond rose to a 2-1/2-month top on Monday amid speculations that Fed Chair Jerome Powell’s comments during the post-meeting press conference might point to a higher bar for further rate reduction. This continues to act as a headwind for the non-yielding Gold through the Asian session.
- US President Donald Trump may walk away from supporting the Ukrainian war efforts against Russia, the American leader’s son said while speaking at a West Asia conference. This comes amid slow progress in Russia-Ukraine ceasefire talks and keeps geopolitical risks in play, which is seen as another factor supporting the safe-haven commodity.
- Traders now look forward to Tuesday’s US economic docket – featuring the release of the ADP Weekly Employment Change and JOLTS Job Openings. The data might influence the USD price dynamics and provide some impetus to the XAU/USD pair, though traders might opt to wait on the sidelines heading into the key central bank event risk.
Gold needs to break out through a short-term range before the next leg of a directional move
The commodity has been showing some resilience below the 200-hour Exponential Moving Average (EMA) since the beginning of this month. Given that oscillators on the daily chart are holding in positive territory, a subsequent move back above the $4,200 mark could lift the Gold price to the next relevant hurdle near the $4,245-4,250 region. The latter represents the top end of a one-week-old range, above which the XAU/USD pair could surpass the $4,277-4,278 intermediate hurdle and aims to reclaim the $4,300 mark.
On the flip side, the $4,175-4,174 area could offer immediate support ahead of the monthly low, around the $4,164-4,163 zone. A convincing break below could make the Gold price vulnerable to accelerate the fall towards testing sub-$4,100 levels. The latter represents a short-term ascending trend-line extending from late October, which, if broken decisively, will be seen as a fresh trigger for bearish traders and pave the way for deeper losses.
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.