Spot gold (XAU/USD) fell 1.85% on Tuesday and closed near $4,596, after trading as low as about $4,555. It has closed lower in four of the last six sessions, and the move broke a prior hold above $4,650.
The Federal Reserve decision is due at 18:00 UTC on Wednesday, with the policy rate expected to stay at 3.50% to 3.75%. Key US releases on Thursday include Q1 GDP, forecast at 2.3% annualised after 0.5%, and March Core PCE, seen at 3.2% year on year versus 3%.
Fed Decision And Market Setup
Friday brings the ISM manufacturing PMI, with the prices paid index expected near 80, above the 50 expansion level. On a 15-minute view, price is $4,595.84 versus the day’s open of $4,697.98, with Stochastic RSI moving down from overbought.
On the daily chart, price is between the 50-day EMA at about $4,764.90 and the 200-day EMA near $4,325.77, with Stochastic RSI near 32. Central banks added 1,136 tonnes of gold worth around $70 billion in 2022, the highest annual total on record.
We are seeing gold prices test the $4,600 level after a sharp decline ahead of the Federal Reserve’s decision later today. The key uncertainty is how the Fed will address persistent inflation, especially with recent energy price shocks stemming from the Iran conflict. Implied volatility in gold options has risen to a six-week high, which suggests the market is bracing for a significant price move in either direction following the announcement.
A hawkish tone from the Fed, emphasizing inflation control despite energy costs, would likely strengthen the dollar and push gold lower. In this scenario, we would consider buying put options or establishing short futures positions, targeting a break below yesterday’s low near $4,555. The primary support level to watch on a sustained sell-off remains the 200-day moving average around $4,325.
Conversely, if the Fed signals patience and acknowledges the risk of an energy-driven slowdown, gold should find relief. This outcome would warrant looking at call options or long futures to capitalize on a rally. The first major hurdle to overcome would be the 50-day moving average, currently sitting near $4,765.
Macro Backdrop And Key Catalysts
We are mindful of historical precedents, as the current combination of an energy shock and persistent inflation echoes the stagflationary environment of the 1970s. While that period was volatile, gold ultimately performed well as a store of value. This longer-term bullish case is also supported by continued central bank buying, which, looking back from 2025, we saw reach record levels in 2022 and has continued robustly into this year.
Beyond today’s Fed meeting, our focus will shift to Thursday’s Q1 GDP and Core PCE inflation data. Stronger-than-expected figures would validate a hawkish Fed stance and likely add further pressure on gold prices through the end of the week. Any signs of slowing growth or cooling inflation, however, could reignite bullish sentiment for the metal.
