Gold weakens amid renewed USD strength and higher bond yields, ahead of FOMC Minutes
- Gold struggles to capitalize on the overnight bounce from a two-month low amid fresh USD buying.
- Geopolitical uncertainties, along with elevated US bond yields, help revive demand for the Greenback.
- Traders now look to FOMC Minutes for more cues about the policy path and some directional impetus.
Gold (XAU/USD) meets with a fresh supply during the Asian session on Wednesday, stalling the previous day's modest bounce from the $4,100 neighborhood, or a two-month low. The US Dollar (USD) regains positive traction ahead of the FOMC meeting minutes and turns out to be a key factor exerting pressure on the commodity.
The US macro data released last week pointed to moderating inflation and a slight cooling in the labor market, easing pressure on the Federal Reserve (Fed) to raise interest rates. However, the CME Group's FedWatch Tool indicates that traders are pricing in around an 85% chance that the US central bank will raise borrowing costs in December. Hence, the upcoming FOMC Minutes will be looked upon for insights into further rate hikes and policy metrics, which, in turn, will play a key role in driving the USD and the non-yielding Gold.
Fed hike expectations shift toward December as medium-term outlook darkens
Strategists at BNY Markets stress that the recent repricing away from an October Fed move does not imply a material shift in the near-term policy path, noting that “that doesn’t mean that the December hike odds have shortened significantly, but we now expect the second hike of this cycle at the end of the year.” Looking further ahead, they caution that “into 2027, the outlook gets murkier, not least because the ongoing Middle East conflict has proven itself impossible to handicap – and with it, oil prices and the supply-side effect they have on the inflation outlook.”
Heading into the key event, persistent geopolitical uncertainties, along with a fresh leg up in US bond yields, help revive demand for the safe-haven USD. In the latest developments surrounding the Middle East crisis, Saudi-backed Yemen's internationally recognized government forces claimed control over strategic points along the Red Sea coast, including areas around the Bab al-Mandeb Strait. On the other hand, the Iran-backed Houthi group retaliated by attacking key targets in Saudi Arabia, including an Aramco refinery in Riyadh.
Moreover, Iran has ramped up its pace of attacks in the Strait of Hormuz over the past week, helping crude oil prices to build on the overnight bounce from a one-month low. This, in turn, fuels energy-driven inflation fears and keeps US bond yields elevated near multi-year highs, which lends additional support to the USD and favors XAU/USD bears. Meanwhile, China's central bank extended its gold-buying streak for the 23rd consecutive month, though it did little to lend any support to the gold price amid a bearish fundamental backdrop.
XAU/USD 4-hour chart
Technical Analysis
The recent range-bound price action witnessed since the beginning of last week might be categorized as a bearish consolidation phase against the backdrop of a fall from the August monthly swing high. Moreover, the Gold price holds below the 100‑period Simple Moving Average (SMA) on the 4-hour chart and the 61.8% Fibonacci retracement, validating the negative outlook.
Meanwhile, the Moving Average Convergence Divergence (MACD) stays in positive territory with a reading of 3.35, hinting at modest bullish momentum. However, the Relative Strength Index (RSI) at 44.26 leans slightly lower, suggesting that rallies are vulnerable while the precious metal remains capped beneath these overhead levels.
Nevertheless, it would still be prudent to wait for a break and acceptance below $4,100, representing the lower boundary of the trading range and the 78.6% Fibo. retracement, before positioning for further losses to a more important structural floor at $3,938. On the topside, immediate resistance is seen at the 61.8% retracement at $4,228, followed by the 100‑period SMA at $4,248 and the 50% retracement at $4,317. A sustained break above these clustered barriers would be needed to ease the current bearish tone.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
