- Gold retreats 0.21% to $4,039 as Warsh emphasizes inflation risks.
- Fed holds rates at 3.75%-4%, with two officials favoring tightening.
- December Fed hike odds reach 85% ahead of crucial US PCE data.
Gold price retreats by 0.21% on Wednesday as Federal Reserve Chair Kevin Warsh said that he is unable to call financial conditions tight, even though credit conditions have tightened. The XAU/USD trades at $4,039 at the time of writing.
XAU/USD remains under pressure as Warsh signals financial conditions may not be sufficiently restrictive
Fed Chair Kevin Warsh said that Fed tightening shows signs it’s working, even as inflation remains elevated. However, he emphasized that the committee is committed to delivering price stability and that there is no soft inflation; that there's a target of price stability, and it's 2% as measured by PCE
On Wednesday, the Fed held rates at 3.75%-4% with two dissenters, Fed Governor Lisa Cook and Cleveland Fed President Beth Hammack, who voted for a 25 basis points rate hike
The Fed acknowledged that economic activity is expanding, domestic spending “has been resilient, that productivity growth is strong and that capital investment is robust,” and productivity growth is strong. Regarding its employment mandate, the Fed noted that “Job gains have kept pace with the workforce, and the unemployment rate has changed little.”
On inflation, the central bank said it remains elevated but chose to hold off on rate hikes while gathering more information and assessing the appropriate policy stance.
Tensions between the Houthis and Saudi Arabia remain high, following an attack by the Iran-backed group in Yemen on a Saudi refinery, which pushed energy prices higher on concerns of supply disruptions.
After the Fed’s meeting, Gold traders will also eye the release of the Core Personal Consumption Expenditures (PCE) Price Index – the Fed’s preferred inflation measure – on Thursday. A hot reading on this and strong Gross Domestic Product (GDP) figures will cement the case for another rate hike at the December meeting.
The swaps market had priced in 21 basis points of tightening, or an 85% chance that the Fed will hike in the December meeting, according to Prime Terminal.
Meanwhile, higher interest rates are negative for Gold prices, despite its appeal as an inflation hedge.
Of note, analysts polled by Reuters downward-revised their forecasts for Gold towards the end of 2026.
XAU/USD technical analysis: Gold consolidates within $4,000-$4,100
Even though Gold formed a ‘bullish harami’ candle pattern, price action on Wednesday puts in doubt the validity of the pattern. If the candle closes the day near current prices, it could open the door to some consolidation.
Momentum has shifted negatively. The Relative Strength Index (RSI) is bearish, pointing downwards, aligned with price action. Given the mixed signals, price action will remain at around familiar levels until the Fed’s decision.
On the upside, the next area of interest is a resistance trendline drawn from the September highs near $4,100. A breach of this level will expose $4,200. The next key resistance levels are the 100-day Simple Moving Average (SMA) at $4,218 and the 50-day SMA at $4,278.
If XAU/USD falls below $4,000, it could test last Friday’s low of $3,975. The next key support levels are the July 17 low of $3,959 and the year-to-date (YTD) low of $3,941.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.