Gold prices remain under pressure, trading near the $4,300 mark, as the US dollar continues to strengthen ahead of this week's Federal Reserve monetary policy announcement and amid intensifying conflict in the Middle East. The precious metal made a brief attempt to recover in early August but faltered as renewed demand for the dollar pushed it back toward the $4,000 level, far below the $4,700 peak seen just a month ago.
FOMC decision and market expectations
The Federal Open Market Committee (FOMC) will announce its policy decision on Wednesday. According to the CME FedWatch Tool, markets assign a probability above 90% to a 25-basis-point rate hike, leaving less than a 10% chance that the committee holds rates steady. The hike itself is widely anticipated, but the broader backdrop adds complexity.
Fed Chair Kevin Warsh, who took office in May, has avoided forward guidance throughout his tenure. However, at this year's Jackson Hole Symposium, he acknowledged that inflation remains too high and signalled that a near-term rate increase would be needed—the clearest indication he has offered so far. The decision therefore carries weight beyond the immediate rate move.
Political pressure on the Fed
The dynamics are complicated by President Donald Trump's stance on interest rates. Trump previously launched public attacks on former Fed Chair Jerome Powell, calling for lower rates. While he has refrained from directly targeting Warsh, he recently threatened to halt trade with countries that run surpluses with the US unless the Fed cuts rates, and referred to FOMC members as clowns. Warsh faces a dilemma: a rate hike could provoke Trump and risk a sharper economic slowdown if trade restrictions are imposed, while holding rates would damage the Fed's credibility and signal that political pressures override economic considerations.
Technical outlook for gold
From a technical perspective, the daily chart shows live gold price trading below all its major moving averages. The 20-day and 100-day simple moving averages are sloping lower, capping rallies at $4,450 and $4,330 respectively. Technical indicators have paused their decline but remain in negative territory, offering no signs of bearish exhaustion.
Analysts outline two potential scenarios. If the Fed delivers a rate hike as expected, gold could fall further, though the decline may be limited because the move is already priced in. A drop toward $4,200 is plausible, and below that the path would open toward the $4,000 mark. If the Fed unexpectedly holds rates steady, the dollar would likely sell off sharply, pushing gold toward $4,500 in the near term. However, given the prevailing bearish trend, a return to the $4,700 peak appears unlikely amid the current risk-off environment.
Key takeaways
- Rate hike odds: Markets price in a 25-basis-point hike at Wednesday's FOMC meeting, with a hold probability below 10%.
- Political tension: Fed Chair Warsh faces conflicting pressure from Trump's demand for lower rates and the need to maintain credibility on inflation.
- Gold levels: A rate hike could push gold toward $4,200 and potentially $4,000; a surprise hold might lift gold to $4,500 or higher.
- Technical posture: XAU/USD remains bearish below all key moving averages, with resistance at $4,330 and $4,450.
Common questions
What happens if the Fed does not raise rates?
If the FOMC decides to hold rates unchanged, the US dollar is likely to weaken sharply. Gold, which is currently below $4,300, could rally toward the $4,500 level. However, further gains to $4,700 are considered unlikely given the broader bearish trend and risk-averse market conditions.
The outcome of Wednesday's decision will set the tone for gold in the weeks ahead. For now, the metal remains under pressure from dollar strength and elevated interest rate expectations.