$4,400: Gold sellers set to retain control whilst below this level; focus shifts to Fed
- Gold holds a pullback from six-day highs of $4,369 as buyers take a breather early Tuesday.
- The US Dollar looks to fill Monday’s bearish opening gap as markets temper Iran deal optimism.
- Technically, Gold remains exposed to downside risks whilst below the 21-day SMA near $4,400.
Gold is defending minor bids above $4,300 in Asia on Tuesday, holding the pullback from six-day highs of $4,369 reached in the US last session.
Gold: A sell-the-rally trade
Following a solid start to the week, Gold pauses its three-day recovery as buyers turn cautious amid fading optimism over a tentative peace deal agreed between the United States (US) and Iran on Sunday, which led to the reopening of the Strait of Hormuz.
Investors have also turned cautious ahead of key central bank monetary policy decisions, including the US Federal Reserve (Fed) outcome on Wednesday. These factors revive the haven demand for the US Dollar (USD) as the buck now looks to fill in the bearish opening gap seen on Monday.
Even though US President Donald Trump continues to hail the peace agreement, markets take it with a pinch of salt amid persisting tensions between Israel and Lebanon and ahead of Friday’s signing of the deal at the G7 in Geneva.
Trump recently said in his Truth Social post that “Iran has agreed to never have a Nuclear Weapon!”
Meanwhile, the Israeli military said late Monday that Iran-backed Lebanese militant group, Hezbollah, fired rockets and drones at Israeli forces trying to advance in southern Lebanon.
Hezbollah confirmed it attacked Israeli forces “advancing” in the south on Monday, and Lebanese media said an Israeli drone earlier targeted a car, killing the driver, per The Guardian.
Looking ahead, Gold traders could reposition their recent longs ahead of the all-important two-day Fed monetary policy meeting, starting later on Tuesday, the first under new Chairman Kevin Warsh.
Furthermore, Gold’s technical setup on the daily chart also keeps the bearish bias in place in the near-term.
Against this backdrop, the Gold price upside will likely remain capped, with ‘sell-the-rally’ expected to remain in play.
Gold price technical analysis: Daily chart
In the daily chart, XAU/USD trades at $4,310.42, extending a bearish bias as spot holds below the medium- and long-term moving averages. The 50-day simple moving average (SMA) at $4,572.28, the 200-day SMA at $4,457.84 and the 100-day SMA near $4,754.31 all sit overhead, suggesting rallies are likely to meet supply while the metal trades under this stacked resistance. The Relative Strength Index (RSI) at 42.53 stays below the 50 line, hinting at lingering downside pressure rather than a decisive oversold condition.
On the topside, initial resistance is seen at the 50-day SMA around $4,572.28, followed by the 200-day SMA at $4,457.84 and then the 100-day SMA near $4,754.31, which together outline a broad cap on recovery attempts. On the downside, immediate support is provided by the 21-day SMA at $4,408.32; a sustained break back below the recent lows would expose the next bearish leg, while holding above this short-term average could allow for a corrective bounce within the broader downward phase.
(The technical analysis of this story was written with the help of an AI tool.)
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.
Author
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
