Gold Price Forecast: XAU/USD looks to Fed policy verdict for next directional impetus

Gold is replicating Tuesday’s Asian bounce toward the $4,000 mark early Wednesday as traders look to cash in on the recent sharp correction from record highs of $4,382 ahead of the critical US Federal Reserve (Fed) monetary policy decision.  

Gold: Will the rebound last on the Fed outcome?

Having lost another 3.5% of its value so far this week, Gold is attempting a tepid recovery on profit book, as markets resort to pre-Fed repositioning.

However, the further upside in Gold appears capped by easing US-China trade concerns and the ongoing risk rally on global stocks.

Heading into the crucial meeting between US President Donald Trump and his Chinese counterpart Xi Jinping, Trump said that he expects to lower fentanyl linked tariffs on China, while reiterating, “I think we are going to have a great meeting with Xi.”

The near-term direction in Gold could be driven by the Fed policy announcements and the outcome of the Trump-Xi meeting.

The Fed is widely expected to lower the key interest rates by another 25 basis points (bps), following the “risk management cut” in September. As the rate decision is fully priced in, the focus will be on the voting composition and any hints from Fed Chair Jerome Powell on future rate reductions.

Markets expect a 9-3 vote split, as Fed Governor Stephen Miran is again expected to dissent in favor of a 50 bps cut, while board members Goolsbee and Musalem are seen leaning in favor of rates on hold.

In case the vote count surprises with 10-2 or 11-1 in favor of a 25 bps rate cut and/ or Powell underscores the increasing downside risks to the labor market, that is likely to be perceived as dovish. This scenario is set to revive the record-setting rally for the non-yielding bullion.

However, Gold could accelerate its corrective downside if the vote split comes out hawkish, watering down hopes of further rate cuts, especially for the December meeting.

All in all, the Fed statement and Powell’s words will be closely scrutinized for the central bank’s outlook on inflation, growth and labor market amid the US government shutdown-driven data drought.

But markets could continue to remain wary ahead of Thursday’s Trump-Xi meeting.

Gold price technical analysis: Daily chart

The daily chart shows that Gold price has sustained its rebound from near the critical support at $3,847, which is the 50% Fibonacci Retracement (Fibo) level of the parabolic rise that began in mid-August.

However, it is critical for buyers to recapture the $4,000 round figure to negate the near tern bearish bias.

The important resistance levels to watch out for on a dovish Fed are $4,000 and the 21-day Simple Moving Average (SMA) at $4,064, followed by $4,129 – the 23.6% Fibo level of the same ascent.

In case of a less dovish Fed outcome, Gold could once again challenge the abovementioned 50% Fibo support at $3,847,  below which the 50-day SMA at $3,795 aligns.

The last line of defense for buyers is seen at the $3,721, which the 61.8% Fibo level (Golden ratio).

The 14-day Relative Strength Index (RSI) is flatlining close to the 50 threshold, suggesting a lack of clear trading incentives in the bright metal.