Gold prices experienced a decline on Wednesday, correcting from an all-time high reached just one day earlier, driven by a modest recovery in the US dollar. The precious metal faced downward pressure following a rally that saw it soar past the $3,665 mark. In the early European session, gold fell further, reaching a fresh daily low.
This modest bounce in the US dollar comes amid repositioning trades as investors await the critical Federal Open Market Committee (FOMC) decision. While the dollar has gained slightly, trading just above its lowest level since early July, expectations of a dovish stance from the Federal Reserve suggest that any significant gains may be limited. Analysts anticipate that the Fed will initiate a rate-cutting cycle, possibly implementing two more cuts by the end of the year due to indicators of a weakening labor market. This expectation is likely to keep support for non-yielding gold intact, cushioning the recent declines.
Geopolitical tensions also play a significant role in gold’s performance. Investors remain cautious as the Russia-Ukraine conflict escalates, along with rising tensions in the Middle East. The recent actions by Ukraine, which included striking a major oil refining complex in Russia, highlight these geopolitical risks. Additionally, Israel’s ongoing military operations in Gaza City have further fueled uncertainty, contributing to gold’s appeal as a safe-haven asset.
In the Asian session, profit-taking occurred after gold’s impressive rally to record highs. Data released from the US Census Bureau indicated a robust rise in retail sales, up 0.6% in August—a sign that consumers remain resilient despite broader economic pressures like inflation and a softening job market. Nevertheless, this data seems unlikely to sway investor sentiment away from the anticipated Fed rate cuts.
Attention is now focused on the upcoming FOMC policy announcement, economic projections, and comments from Fed Chair Jerome Powell during the post-meeting press conference. Market participants are eagerly anticipating insights into the Fed’s rate-cut trajectory, which would impact both the dollar and gold prices.
From a technical perspective, gold’s recent overbought condition, reflected in the daily Relative Strength Index (RSI), suggests that some profit-taking is warranted. However, a breakthrough through a specific bullish pattern indicates that buyers may re-enter the market near the $3,645 level. Further declines could face support around the $3,610 to $3,600 range, which could hold back deeper losses. A failure to maintain this support could pave the way for prices to retreat towards the $3,562-3,560 area, potentially reaching the psychological threshold of $3,500.
Conversely, bullish momentum may re-establish itself if the price consistently holds above the $3,700 mark, signaling an extension of the recent upward trend witnessed over the past month. As the market closely watches developments, the interplay between economic indicators, Fed policies, and geopolitical risks will continue to shape the trajectory of gold prices.
