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Gold price bulls pause for a breather after refreshing record high; Fed decision awaited

  • Gold price hits a fresh record high on Wednesday amid geopolitical risks and trade jitter.
  • Fed rate cut bets further benefit the non-yielding yellow metal and remain supportive. 
  • A modest USD bounce caps the commodity ahead of the crucial FOMC policy decision.

Gold price (XAU/USD) extends its consolidative price move near the record high through the first half of the European session on Wednesday as bulls pause for a breather ahead of the FOMC policy update. The Federal Reserve (Fed) will announce its decision later during the US session and is expected to keep the federal funds rate unchanged at the current range of 4.25% to 4.50%. Hence, the focus will remain glued to the accompanying policy statement and the updated economic projections, which include the so-called dot plot. Apart from this, Fed Chair Jerome Powell's comments at the post-meeting press conference will be looked upon for cues about the future rate-cut path. This will influence the US Dollar (USD) price dynamics and provide some meaningful impetus to the non-yielding yellow metal.

Heading into the key central bank event risk, some repositioning trade assists the US Dollar (USD) to gain positive traction and snap a three-day losing streak to its lowest level since October touched on Tuesday. This, in turn, is seen acting as a headwind for the Gold price, though the near-term bias seems tilted in favor of bullish traders. Market participants now seem convinced that the Fed will lower borrowing costs several times this year amid worries about a tariff-driven US economic slowdown. Apart from this, the uncertainty over US President Donald Trump's aggressive trade policies and geopolitical risks should continue to underpin demand for the safe-haven bullion. This, in turn, suggests that any corrective pullback might still be seen as a buying opportunity and is more likely to remain limited. 

Daily Digest Market Movers: Gold price retains bullish bias ahead of the Fed decision

  • Gold price touches a fresh record high, around the $3,039 region on Wednesday as rising Middle East tensions and concerns about US President Donald Trump's tariff plans continue to fuel demand for the safe-haven asset.
  • Israeli airstrikes on Hamas targets in Gaza, killing more than 400 people. Israeli Prime Minister Benjamin Netanyahu said he ordered strikes because Hamas had rejected proposals to extend the ceasefire held since January. 
  • Trump has threatened to impose reciprocal and sectoral tariffs, which he said will come into effect on April 2. This comes on top of a flat 25% duty on steel and aluminum since February, fueling global trade war fears.
  • Traders ramp up their bets that the Federal Reserve will have to lower interest rates this year by more than expected amid the rising possibility of an economic downturn on the back of the Trump administration’s aggressive policies. 
  • The current market pricing indicated the possibility that the Fed could lower borrowing costs by 25 basis points each at the June, July, and October monetary policy meetings, which further underpins the now-yielding yellow metal.
  • The US Dollar stages a modest bounce from over a five-month low touched on Tuesday as traders opt to lighten their bearish bets ahead of the FOMC decision, scheduled to be announced later during the US session this Wednesday. 
  • The accompanying monetary policy statement and comments by Fed Chair Jerome Powell will be scrutinized closely for cues about the future rate cut path, which will drive the USD demand and influence the XAU/USD pair.

Gold price seems poised to prolong a well-established uptrend while above  the $3,000 mark

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The daily Relative Strength Index (RSI) is holding above the 70 mark, suggesting slightly overbought conditions. Heading into the key central bank event risk, this makes it prudent to wait for some near-term consolidation or a modest pullback before traders start positioning for any further appreciating move. Meanwhile, the recent breakout and acceptance above the $3,000 psychological mark suggests that the path of least resistance for the Gold price remains to the upside. 

Meanwhile, any corrective slide could be seen as a buying opportunity and remain limited near the $3,005-3,000 area. This is followed by support near the $2,980-2,978 region, which if broken might prompt some technical selling and drag the Gold price to the $2,956 zone. The downward trajectory could extend further towards the $2,930 intermediate support before the XAU/USD eventually drops to the $2,900 mark en route to last week's swing low, around the $2.880 region.

Interest rates FAQs

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.


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Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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