Gold (XAU/USD) is experiencing follow-through selling, dropping below the $4,050 level during the Asian session on Tuesday after failing to hold above $4,100 the previous day. This weakness comes as the US dollar strengthens, supported by geopolitical factors, ahead of the Federal Open Market Committee (FOMC) meeting. Investors are eagerly awaiting cues from the Federal Reserve regarding its future policy path, which will impact USD demand and, consequently, gold prices.
While geopolitical risks, such as restricted traffic through the Strait of Hormuz and drone attacks in Saudi Arabia, Jordan, and Iraq, typically support safe-haven assets like gold, the stronger dollar and focus on US interest rates are currently overriding this demand. The US Dollar Index remains firm, further pressuring gold, which becomes more expensive for holders of other currencies when the dollar appreciates. Market participants are also anticipating Fed Chair Jerome Powell's post-meeting remarks for insights into potential future rate adjustments, as higher interest rates generally diminish the appeal of non-yielding assets such as gold.
Despite the current weakness, the downside for gold appears limited, with the $4,000 psychological mark serving as a critical support level. Traders are cautious ahead of the FOMC meeting, and aggressive bearish bets are being avoided until a clear break below $4,000 occurs. On the upside, the $4,200 level represents key resistance, and a daily close above this mark would be necessary to alleviate the broader bearish bias and potentially open a path towards the 200-day Simple Moving Average at $4,493.65.
In related news, gold futures on the Multi Commodity Exchange for August delivery declined by $1,213, or 0.85%, to $141,850 per 10 grams, reflecting the broader market caution and weakening global gold prices. Analysts suggest that the Fed's policy statement and upcoming US economic data will be the primary drivers for precious metal markets in the near term, with inflation indicators and global economic growth also being closely monitored.
