Gold (XAU/USD) continued its decline on Wednesday, trading near $4,003, as investors remained cautious ahead of the Federal Reserve’s monetary policy announcement. The precious metal struggled to attract safe-haven flows despite renewed hostilities between the United States and Iran, which included Iranian missile attacks intercepted by US forces and retaliatory strikes by US and Saudi forces in Iraq. This escalation pushed Crude Oil prices sharply higher and revived concerns that rising energy costs could keep inflation elevated, strengthening the case for the Fed to maintain restrictive interest rates for longer and limiting gold's upside potential [1].
Technical analysis shows XAU/USD trading at $4,011.96, maintaining a bearish tone below both the 20-period SMA ($4,056) and the 100-period SMA ($4,061). The Relative Strength Index (RSI) at 39 indicates weak momentum, with sellers in control. Resistance levels are noted at $4,025, $4,033, and $4,048, while immediate support is at $4,024 and a more significant floor at $3,996 [1].
The Federal Reserve’s decision is described as 'genuinely live,' with futures implying about a 35% chance of a rate hike, though a hold remains the base case. Markets are pricing an approximately 80% probability of a 25-basis-point increase in September, and around 64% of traders expect a hold today [1][2]. BNY’s Geoff Yu emphasizes that the market reaction will depend heavily on Fed Chair Kevin Warsh’s guidance regarding September. A surprise hike would likely trigger a bearish cross-asset reaction, while even a hawkish hold may offer only limited support for the US Dollar, as expectations for future hikes are already partly embedded [2].
If the Fed provides little guidance, rates and FX volatility could rise as investors await upcoming CPI and PCE releases to assess whether energy-driven inflation is broadening. Confirmation of a September hike would probably generate only a muted rise in yields, while limited guidance could prolong volatility. The anticipation is supporting patience rather than confidence, and disappointment from the Fed or earnings could quickly extend the current de-risking trend [2].
CONCLUSION
Gold remains under pressure as investors await the Federal Reserve’s decision, with elevated US yields and a strong Dollar limiting its appeal despite geopolitical tensions. The market is bracing for volatility, with the Fed’s guidance on future rate hikes set to determine the direction of yields and risk assets. Uncertainty persists, and a surprise from the Fed could trigger significant cross-asset moves.