Gold Analysis: Fed Minutes Keep Pressure on XAU/USD
As the trading week progresses, gold is struggling to regain momentum, evidenced by a decline of approximately 0.9% over the last three trading sessions. This bearish trend has been reinforced by the recent release of the Federal Reserve minutes, which have maintained selling pressure on gold.
What Did the Federal Reserve Minutes Reveal?
The minutes from the Federal Reserve's September meeting highlighted a unanimous agreement among officials regarding the recent rate hike. They expressed concerns that inflation remains elevated and that current monetary policy is not sufficiently restrictive to ensure a lasting reduction in inflationary pressures. Most policymakers anticipate another rate increase before the end of 2026, suggesting that the Fed's restrictive stance is still in play.
While markets currently assign an 80% probability to rates remaining unchanged at the upcoming October 28 meeting, there is a growing expectation that rates could rise to around 4.25% by year-end, up from the current 4.00% level. This outlook supports the perception of a potentially more aggressive Federal Reserve in the coming months.
Impact on Gold and Competing Markets
The Fed's stance has bolstered the U.S. dollar and Treasury yields, both of which are significant competitors to gold. Ten-year Treasury yields are trading near 5.3%, close to multi-decade highs, while the DXY index remains above 102, indicating strong demand for the dollar. This dynamic has made it challenging for gold to attract consistent demand, as elevated yields and a strong dollar continue to limit its appeal.
Market Activity and Sentiment
Recent futures market activity reflects a cautious sentiment, with trading volumes near monthly lows and Open Interest showing a flat trend. This suggests that traders are hesitant to take new long positions, reinforcing the bearish sentiment surrounding gold.
Gold Technical Forecast
The long-term bearish trendline has regained significance, with gold's price action reflecting a renewed downtrend. The Relative Strength Index (RSI) remains below the neutral level of 50, indicating ongoing bearish momentum.
Key Levels to Watch:
- $4,500 – Major Resistance: A significant upside barrier that could challenge the bearish trend.
- $4,330 – Near-Term Barrier: An important retracement zone that may serve as a reference for short-term bullish corrections.
- $4,000 – Critical Support: A major support zone that, if breached, could reinforce the dominance of sellers and extend the long-term bearish trend.
In conclusion, the Federal Reserve minutes have solidified a market environment where the bond market and the U.S. dollar remain attractive alternatives to gold. As long as this dynamic persists, gold's ability to recover may be limited, keeping the bearish trend relevant in the near term.
Written by Julian Pineda, CFA, CMT – Market Analyst