Gold price slides towards $4,000 on Fed’s hawkish vote split
- Gold falls 0.67% to $4,039 as Fed decision offers little relief.
- Fed holds rates at 3.75%-4%, with two officials favoring a hike.
- WTI tops $103 as traders await Warsh's guidance and US PCE.
Gold price retreats by 0.67% on Wednesday as the Federal Reserve holds rates unchanged, amid a 10-to-2 vote split, which triggered no movement in the yellow metal. This, along with the US-Iran conflict, weighs on bullion prices. The XAU/USD trades at $4,039 at the time of writing.
XAU/USD remains under pressure as a divided Fed pauses tightening while energy prices fuel inflation concerns
On Wednesday, the Fed held rates at 3.75%-4% with two dissenters, Fed Governor Lisa Cook and Cleveland Fed President Beth Hammack, who voted for a 25 basis points rate hike
The Fed acknowledged that economic activity is expanding, domestic spending “has been resilient, that productivity growth is strong and that capital investment is robust,” and productivity growth is strong. Regarding its employment mandate, the Fed noted that “Job gains have kept pace with the workforce, and the unemployment rate has changed little.”
On inflation, the central bank said it remains elevated but chose to hold off on rate hikes while gathering more information and assessing the appropriate policy stance.
The focus is on the Fed’s Chair Warsh press conference, who will need to answer questions of why not raise rates today, when West Texas Intermediate (WTI), the US Oil benchmark, is above $103 per barrel, up more than 3%, and gasoline prices are $1.20 higher than a year ago at $4.24, according to AAA Fuel Prices.
Along with this, traders would look for hints that Warsh might provide about the future of interest rates – even though he doesn’t like to forward-guide the markets.
Tensions between the Houthis and Saudi Arabia remain high, following an attack by the Iran-backed group in Yemen on a Saudi refinery, which pushed energy prices higher on concerns of supply disruptions.
After the Fed’s meeting, Gold traders will also eye the release of the Core Personal Consumption Expenditures (PCE) Price Index – the Fed’s preferred inflation measure – on Thursday. A hot reading on this and strong Gross Domestic Product (GDP) figures will cement the case for another rate hike at the December meeting.
The swaps market had priced in 21 basis points of tightening, or an 85% chance that the Fed will hike in the December meeting, according to Prime Terminal.
Meanwhile, higher interest rates are negative for Gold prices, despite its appeal as an inflation hedge.
Of note, analysts polled by Reuters downward-revised their forecasts for Gold towards the end of 2026.
XAU/USD technical analysis: Gold consolidates within $4,000-$4,100
Even though Gold formed a ‘bullish harami’ candle pattern, price action on Wednesday puts in doubt the validity of the pattern. If the candle closes the day near current prices, it could open the door to some consolidation.
Momentum has shifted negatively. The Relative Strength Index (RSI) is bearish, pointing downwards, aligned with price action. Given the mixed signals, price action will remain at around familiar levels until the Fed’s decision.
On the upside, the next area of interest is a resistance trendline drawn from the September highs near $4,100. A breach of this level will expose $4,200. The next key resistance levels are the 100-day Simple Moving Average (SMA) at $4,218 and the 50-day SMA at $4,278.
If XAU/USD falls below $4,000, it could test last Friday’s low of $3,975. The next key support levels are the July 17 low of $3,959 and the year-to-date (YTD) low of $3,941.
Fed FAQs
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.
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.
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.
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
Christian Borjon Valencia
FXStreet
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.
