Gold Price Forecast: XAU/USD drops as oil price rebounds, Fed’s policy eyed
- Gold price drops to near $4,050 as oil prices bounce back.
- The attack on Saudi’s oil refinery by Iran-backed Houthis has prompted energy supply risks.
- Investors expect the Fed to leave interest rates unchanged later in the day.
Gold slips 0.3% to near $4,050 in the Asian trade on Wednesday, as oil prices bounce back after a two-day correction. The precious metal is expected to face high volatility as the Federal Reserve (Fed) is scheduled to announce the monetary policy later in the day at 18:00 GMT.
What stages a comeback for oil prices?
As of writing, the WTI Oil price trades almost 1% higher to near $100.50 after recovering from its two-day low of $98.83.
Oil prices attract bids after Yemen’s Iran-aligned Houthis said on Tuesday that they had hit Saudi Arabia’s biggest oil refinery with a missile, intensifying their strikes against the world’s second-largest crude producer. Saudi authorities did not immediately confirm the strike on the 550,000 barrel per day facility, Reuters report.
Higher oil prices prompt fears of a fresh acceleration in global inflation, a scenario that pressurizes central banks to consider a prolonged hawkish monetary policy stance. Such a case bodes poorly for non-yielding assets like Gold.
Higher oil prices have also helped United States (US) Treasury Yields returning above the 5% mark. Apart from rising energy prices, caution among investors ahead of the Federal Reserve’s (Fed) monetary policy announcement is also supporting US bond yields.
The US Dollar (USD) is also reflecting strength ahead of the Fed’s policy. At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, holds on to three-day gains near 102.40. Technically, a higher US Dollar makes the Gold price an unfavorable risk-reward bet for investors.
What to expect from Fed in the policy meeting?
According to the CME FedWatch tool, the Fed is almost certain to leave interest rates unchanged in the 3.75%-4.00% range. In the September meeting, the US central bank hiked policy rates by 25 basis points (bps) and signaled at least one more in the remainder of the year.
Economists at Deutsche Bank argue that with policy rates expected to remain on hold, “the interest will therefore be in Chair Warsh’s press conference and how the Fed balances still-elevated inflation and solid growth against the recent tightening in financial conditions.” They anticipate that “the statement itself [is] to contain only limited changes,” but caution that “dissents to a hold are possible,” underscoring the potential for a more divided FOMC even if the headline decision is unchanged.
Gold Technical Analysis
In the daily chart, XAU/USD trades at $4,046.32, keeping a bearish near-term tone as spot remains below the 20-day Exponential Moving Average (EMA) at roughly $4,121.59. The failure to reclaim this dynamic barrier suggests rallies are still being sold, while the Relative Strength Index (RSI) hovers near 39, reinforcing weak momentum rather than a decisive oversold condition that could trigger an immediate bounce.
On the topside, initial resistance is defined by the 20-day EMA at $4,121.59, and a daily close above this level would be needed to ease downside pressure and hint at a more sustained recovery phase. With no nearby structural supports from the provided dataset, the metal remains vulnerable to further slippage while it trades under its short-term EMA, leaving the burden of proof on bulls to regain control above the $4,120 area.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
