Gold (XAU/USD) remains cautiously supported above $3,380 on Wednesday as traders await the Federal Reserve’s interest rate decision, with geopolitical tensions in the Middle East providing an undercurrent of safe-haven demand.
At the time of writing, gold trades near $3,385, maintaining strength despite limited upside, as investors weigh the potential market impact of Fed projections, rate guidance, and Fed Chair Jerome Powell’s comments.
Market Focus Shifts from War Risk to Fed Outlook
Despite generating a haven flow from the current conflict between Israel and Iran, gold is being shifted to the back burner, as the markets attention turns to the Fed’s Summary of Economic Projections (SEP) and the new dot plot, which will provide insights into the inflation outlook, economic growth, and how long interest rates will stay higher than previously expected.
The CME FedWatch Tool is showing a 58% chance of a rate cut in September, but any hawkish surprise from today’s announcement or Powell’s tone that follows could bolster the USD and pressure gold.
Geopolitical Tensions Keep Gold Supported
Investor jitters have been exacerbated by recent remarks by US President Donald Trump, who dropped out early from the G7 summit for a national security meeting. Trump stated he has “complete control of the skies over Iran” and demanded “unconditional surrender”, signaling a clear setback on negotiations/de-escalation.
While reports of military action remain unsubstantiated, investors remain uneasy, and Gold remains solid as a largely unaffected hedge against geopolitical and financial uncertainty.
Central Bank Buying Adds Long-Term Bullish Pressure
Amid rising volatility, central banks continue to accumulate gold, with purchases exceeding 1,000 tonnes annually for the third consecutive year, according to the World Gold Council. This long-term trend supports gold prices structurally, even during periods of short-term correction.
Gold Technical Outlook
XAU/USD is just below the $3,400 level and has immediate support at $3,371 (23.6% Fibonacci), with its 20-day SMA at $3,346 helping to maintain a short-term uptrend, as long as it stays above the 20-day.
A breakout above the approximate $3,400 area could target the $3,440- $3,452 zone, while a drop below the approximate $3,371 area could open up support at $3,360 down to a confluence zone at $3,320- $3,308 where the 50-day MA and important Fibonacci levels lie. With RSI around 56, XAU/USD keeps a slight bullish bias, meaning that under a dovish stance from the Fed, XAU/USD will likely continue to rise.
Conclusion
Gold is showing some resilience currently, as it deals with safe-haven demand that could be heightened by geopolitical events in the Middle East, and potential turmoil by economic trajectory and uncertainty surrounding Fed policy. If the Fed does shift dovish to possibly confirm further upside price action in XAU/USD, if the central bank remains hawkish in their projections, price gains could be capped following a hawkish surprise and result in short-term weakness in XAU/USD.
The market is now looking ahead to Fed Chair Powell’s press conference will likely signal the next directional move in gold.
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