Gold Price Forecast: XAU/USD looks vulnerable as focus shifts to the Fed meeting

Gold is challenging the $4,050 level early Tuesday, extending the pullback from above $4,100, as sellers remain in control ahead of the two-day US Federal Reserve (Fed) monetary policy meeting, starting later in the day.     

Gold: Vulnerable as Fed rate hike bets offset Iran war pause

Gold is in the red for the second consecutive day so far this Tuesday, undermined by the recent demand for the US Dollar (USD).

The Greenback staged a solid comeback across the board on Monday, now holding close to three-week highs, helped by growing market expectations that there remains a real risk of the Fed opting for an interest rate hike this week.

Markets are pricing in roughly a 38% chance of a 25-basis-point (bps) Fed rate hike at the July meeting, up from 16% seen over a week ago, according to the CME Group’s FedWatch Tool, while expecting an 81% probability of a hike in September.

The persistent hawkish expectations around the Fed offset the optimism spurred by easing Oil prices and inflation fears, following a pause in the US-Iran conflict. This continues to underpin the front-end US Treasury bond yields and the buck at the expense of non-yielding assets such as Gold.

Additionally, the chipmaker sell-off deepens in Asia and weighs heavily on risk sentiment, keeping the haven demand for the USD alive and kicking.

Looking ahead, Gold sellers are likely to retain control so long as the Greenback derives strength from hawkish Fed bets and a risk-averse market environment.

Furthermore, Gold traders could refrain from placing any fresh directional bets ahead of the Fed policy announcements due on Wednesday, leaving the bullion vulnerable amid a bearish technical setup on the daily chart.  

Gold price technical analysis: Daily chart

In the daily chart, XAU/USD trades at $4,047.22, retaining a bearish near-term bias as spot remains below the 21-day simple moving average (SMA) at $4,070.45 and well under the 50-, 100- and 200-day SMAs clustered from roughly $4,213 to $4,493. The downward-sloping short- and medium-term averages hint that recovery attempts are likely to meet selling pressure, while the Relative Strength Index (14) at 44.99 stays below the neutral 50 line, suggesting subdued upside momentum after the recent pullback.

Additionally, keeping sellers alive, the 100-day SMA closed below the 200-day SMA on July 22, confirming a Bear Cross.

On the topside, immediate resistance is located at the 21-day SMA at $4,070.45, with further barriers at the 50-day SMA at $4,212.98, followed by the 100-day SMA at $4,458.42 and the 200-day SMA at $4,492.57, which together outline a broad supply zone capping the medium-term outlook. With no clear technical floor defined by the moving averages in the current dataset, any renewed weakness below $4,047.22 would leave gold vulnerable to probing prior swing lows and horizontal levels on the chart for the next meaningful support area.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Fed faces mixed signals as US demand softens, but inflation stays sticky

Economists at DBS Group Research describe the current US macro backdrop as uneven, noting that “the macro dataflow at the current juncture is however mixed, offering some ammunition to those in favour of a wait-and-see approach.” They argue that “once wage growth (around zero in real terms), retail sales (on the soft side), and the public debt situation (enormous forthcoming issuances tilted toward short duration) are considered, the case for pause, for the time being, remains.” In their view, “the Fed faces a tough call: sticky inflation argues for hikes, but soft demand, weak investment, muted wage growth, and heavy debt issuance support holding rates steady for now.”