Gold declines, focus on Fed and falling Oil prices

Gold fell to 4,047 USD per ounce on Tuesday, erasing gains from the previous session. Pressure on the metal is mounting amid fears that the Federal Reserve may raise rates as early as this week.

Markets currently estimate the probability of such a move on Wednesday at over 33% – an unusually high level of uncertainty for the period immediately preceding a central bank meeting.

Investors speculate that a rate hike would allow Fed Chairman Kevin Warsh to reaffirm his commitment to fighting inflation, following repeated promises to restore price stability.

The Fed meeting begins today and concludes on Wednesday evening with a rate decision and accompanying comments.

Additional pressure on gold came from falling oil prices after Donald Trump spoke of "good negotiations" with Iran. This eased inflation concerns, although the US President warned of a readiness to resume strikes if talks fail.

Technical analysis

On the H4 XAU/USD chart, the market formed a consolidation range around the 4,110 USD level and, following a downside breakout, completed a downward move to 4,036 USD. A consolidation range is now forming around this level. A move lower towards 3,940 USD is expected. The MACD indicator confirms ongoing downside momentum, with its signal line above the centre line and turning lower.

On the H1 chart, the market broke below the 4,090 USD level and then moved lower to 4,036 USD. A correction towards 4,070 USD is expected next, with a wide consolidation range forming around this level. The Stochastic oscillator confirms this scenario, with its signal line above 20 and pointing upwards towards 50, indicating the potential for a short-term corrective rebound.

Conclusion

Gold has come under pressure as markets brace for a potential Federal Reserve rate hike this week, with the probability of a move on Wednesday exceeding 33% – an unusually high level of pre-meeting uncertainty. Investors believe a hike would signal Chairman Warsh's renewed commitment to tackling inflation. The Fed meeting gets underway today, with the rate decision due tomorrow. Further pressure came from falling oil prices following Trump's comments on "good negotiations" with Iran, which temporarily eased inflation concerns despite the risk of renewed strikes. Technically, gold appears poised for further downside towards 3,940 USD, with any recovery likely to be capped by the Fed's policy outlook. The central bank's decision and forward guidance will be the key catalysts for gold's near-term direction.