- Gold entered a consolidation phase after setting a new record high.
- The technical outlook suggests that XAU/USD remains overbought.
- The Fed’s policy announcements could trigger the next directional movement.
Gold (XAU/USD) touched a new record-high above $3,670 before entering a consolidation phase. The Federal Reserve’s (Fed) policy decisions could allow investors to decide whether XAU/USD has more room on the upside, despite technically overbought conditions.
Gold remains within a touching distance of record high
Gold started the week on a bullish note as the negative impact of previous Friday’s disappointing August labor market data on the US Dollar (USD) lingered. After rising more than 1% on Monday, Gold preserved its bullish momentum and notched a new all-time high above $3,670 on Tuesday, supported by the ongoing USD weakness and escalating geopolitical tensions.
The US Bureau of Labor Statistics’ (BLS) preliminary benchmark revision to employment data showed that there were 911,000 fewer jobs than initially reported in the 12 months through March 2025. Meanwhile, news of Israel having carried out a strike on senior Hamas leaders in Qatar’s capital, Doha, triggered a flight to safety. Israel noted that it targeted people “directly responsible for the brutal October 7 massacre.” In an official response, Qatar called the attack a “flagrant violation of international law” and condemned Israel’s “cowardly” strike. Additionally, Poland reportedly shot down suspected Russian drones that violated its airspace, causing NATO allies to hold Article 4 consultations, during which parties discussed potential threats to the organization’s territorial integrity, political independence or security.
The BLS reported on Wednesday that the Producer Price Index (PPI) in the US rose 2.6% on a yearly basis in August. This reading followed the 3.1% increase recorded (revised from 3.3%) in July and came in below the market expectation of 3.3%. As this data failed to influence the USD’s valuation in a noticeable way, XAU/USD fluctuated in a tight range to end the day with small gains.
On Thursday, the improving risk mood caused XAU/USD to correct lower, but mixed macroeconomic data releases from the US didn’t allow the USD to gather strength and helped the pair limit its losses. The annual Consumer Price Index (CPI) inflation rose to 2.9% in August as expected, while the weekly Initial Jobless Claims climbed to 263,000 in the week ending September 6 from 236,000 in the previous week, reflecting worsening conditions in the labor market.
The University of Michigan (UoM) reported on Friday that the Consumer Sentiment Index declined to 55.4 in September’s preliminary estimate from 58.2. This print came in worse than the market expectation of 58 and made it difficult for the USD to gather strength heading into the weekend. In turn, XAU/USD stabilized in the upper half of its weekly range.
Gold investors eagerly await Fed policy decisions
The US economic calendar will feature August Retail Sales figures on Tuesday, but markets are unlikely to pay any attention to this data ahead of the Fed policy announcements on Wednesday. Alongside the policy statement, the Fed will also release the revised Summary of Economic Projections (SEP), the so-called dot plot.
According to the CME FedWatch Tool, markets are currently pricing in about a 93% probability of the Fed lowering the policy rate by 25 basis points (bps) to 4%-4.25%.
In case the Fed surprises markets with a 50 bps rate cut, the USD could come under heavy selling pressure with the immediate reaction and open the door for a bullish rally in XAU/USD. However, the reasoning behind such a decision could confuse the markets. If the Fed opts for a large rate cut but notes that it will take its time to assess the impact of this decision on inflation dynamics before taking another policy step in the near term, the USD could rebound and cause XAU/USD to turn south.
In a different scenario, the Fed could go for a 25 bps cut as expected, but the USD could still weaken if the dot plot points to a dovish shift in the policy outlook. June’s SEP showed that policymakers were forecasting only a 25 bps cut in rates in 2026. If the dot plot shows that Fed officials now project three or more rate cuts next year, the USD could have a difficult time finding demand.
Conversely, the USD could outperform its rivals if the SEP shows only one or two rate cuts are forecast by Fed officials next year, opening the door for a deep correction in Gold.
Investors will also pay close attention to comments from Fed Chairman Jerome Powell in the post-meeting press conference. A concerned tone about the labor market outlook and growth prospects could be bearish for the USD, while a reiteration of inflation risks could support the USD and weigh on XAU/USD.
Gold technical analysis
The Relative Strength Index (RSI) indicator on the daily chart holds well above 70, suggesting that Gold remains technically overbought.
On the downside, $3,600 (mid-point of the ascending regression channel) aligns as the first support level before $3,500-$3,480 (static level, round level, 20-day Simple Moving Average). Looking north, the first resistance level could be spotted at $3,700 (round level) ahead of $3,795-$3,800 (upper limit of the ascending channel, round level).
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.
