Gold Price Forecast: XAU/USD record-setting rally extends ahead of Fed decision

Gold sits at fresh record highs above $5,200 as Trump’s Fed Chair pick could coincide policy announcements.
The US Dollar sees a short-covering rally after plunging to four-year lows and ahead of key Fed event risks.
Gold braces for intense volatility while trending within the heavily overbought region on the daily chart.

Dhwani Mehta FXStreet

Gold is continuing its record-printing spree early Wednesday, testing offers above the $5,200 level for the first time. Buyers refuse to pause heading into the US Federal Reserve (Fed) policy announcements, due later in the day.

Gold looks to Fed rate call and next Chair pick

Amid US President Donald Trump’s erratic international trade policies and jawboning the US Dollar (USD), Gold’s record-setting rally remains unabated. The bright metal is up already 20% this month, while posting over 5% gains so far this week.

The next big directional impetus in Gold could depend on the Fed’s policy verdict, with a no interest-rate-change decision widely anticipated. However, Fed Chair Jerome Powell’s assessment of the labor market conditions and hints at rate outlook will likely significantly impact the USD’s performance and hence, that of the non-yielding assets such as Gold.

However, markets will also remain attentive to Trump’s announcement of the next Fed Chair pick, which analysts predict could coincide with the Fed policy decision, overshadowing the latter and exacerbating concerns over the Fed’s independence. This could play out in favor of Gold buyers as the Greenback could be pushed back under the bus.

The USD plunged to four-year lows against its major currency rivals late Tuesday after Trump said the value of the Dollar was "great", when asked whether he thought it had declined too much.

The US currency also faced headwinds from a weak US Conference Board (CB) Consumer Confidence data released on Tuesday. US consumer confidence slumped to the lowest level in more than 11-1/2 years in January, to 84.5 in January.

Gold price technical analysis: Daily chart

In the daily chart, XAU/USD trades at $5,230.25. The 21-day Simple Moving Average (SMA) rises above the 50- and 100-day ones, with all SMAs trending higher and aligned bullishly. Price holds well above these references, reinforcing buyers’ control. The 21-day SMA at $4,664.50 offers nearby dynamic support. The Relative Strength Index (RSI) stands at 87 (overbought) and could precede a pause.

Shorter-term SMAs maintain bullish alignment over the longer gauges, sustaining a supportive trend structure. RSI’s extreme reading could curb immediate upside and prompt consolidation. On dips, the 50-day SMA at $4,430.18 offers initial support, while the 100-day SMA at $4,192.84 and the 200-day SMA at $3,772.42 would underpin the broader advance.

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

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

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.

How often does the Fed hold monetary policy meetings?

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.

What is Quantitative Easing (QE) and how does it impact USD?

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.

What is Quantitative Tightening (QT) and how does it impact 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.

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