XAU/USD consolidates losses ahead of the Fed's 18:00 GMT announcement, with rising oil prices and a firm dollar capping upside potential.

Gold (XAU/USD) is consolidating its recent pullback on Wednesday, trading around $4,037 and down 0.57% on the day. The precious metal has recovered from its lowest levels since July over the past two days, but renewed gains in energy prices and a steady US Dollar are limiting further upside as the market awaits the Federal Reserve’s monetary policy announcement at 18:00 GMT.

Oil rally and strong dollar cap gains

Geopolitical tensions have driven energy costs higher, with West Texas Intermediate (WTI) crude trading around $102.60 per barrel, up 3% on the day. Reports that Washington warned Gulf states of a possible military operation against Iran have fueled this rise. Consequently, US Treasury yields have recovered from recent lows, with the 10-year yield climbing back above 5%. This increase in yields, combined with the US Dollar Index (DXY) hitting a two-week high of 102.49, adds significant pressure on non-yielding gold.

Fed pause expected, but guidance is key

Policymakers are widely expected to keep interest rates unchanged at 3.75%-4.00% at the October meeting. However, traders are pricing in an 85% probability of a rate hike in December, according to the CME FedWatch Tool. Analysts at ABN Amro suggest that recent softer PCE readings and labor data give the Fed room to pause for now. They argue that this allows policymakers to assess whether recent inflation strength is persistent or temporary. With a hold largely anticipated, the Fed's forward guidance may trigger a stronger market reaction than the decision itself. A hawkish tone could strengthen the dollar and put gold’s $4,000 support at risk, while a softer stance could provide room for a relief rally.

Technical outlook: Bearish bias persists

On the daily chart, XAU/USD maintains a bearish near-term bias, trading below the 50-day, 100-day, and 200-day Simple Moving Averages (SMAs). The Relative Strength Index (RSI) sits at 39, indicating weak buying momentum, while the MACD remains in negative territory. Traders are watching the $4,000-$3,950 zone for immediate support. On the upside, initial resistance stands at the 100-day SMA near $4,218, followed by the 50-day SMA at $4,278. A stronger recovery could target the horizontal resistance at $4,400, ahead of the 200-day SMA around $4,500.

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This article is compiled from international market news for information only. It is not investment advice.