Gold struggles near $5,000 ahead of Federal Reserve decision

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Written by: Jerry Chen, Senior Analyst at Gain Capital Group

Tuesday’s market was relatively calm as investors await the Federal Reserve’s interest rate decision early Thursday morning.

There was no significant progress in Middle East tensions. The possibility that Trump may delay his visit to China at the end of the month suggests that the conflict will not end soon. Israel has killed Iran’s security chief (Lari Jani), who is widely believed to be the person in control of the battlefield during the Supreme Leader’s recovery.

Meanwhile, the Strait of Hormuz remains largely blocked, and Iran continues airstrikes on oil and gas infrastructure in the UAE and other countries, forcing Gulf nations to significantly cut production. An energy supply crisis is emerging.

In the markets, international oil prices rose slightly on Tuesday, but the US dollar index fell for the second consecutive day. As market focus shifts to numerous central bank meetings this week, their synchronized movements have temporarily broken down. European and US stock markets continued to rebound, and gold closed overnight at $5,006.

The Reserve Bank of Australia raised interest rates back-to-back on Tuesday, but the 5-4 voting result showed less hawkishness than expected. The market prices in a 40% chance of a rate hike in May. The Australian dollar closed above 0.71. After the RBA, more major central banks may be forced to shift from easing to neutral or tightening policies to address potential inflation risks.

On Wednesday, focus on the US Producer Price Index (PPI) at 20:30 and the Bank of Canada interest rate decision at 21:45. In a geopolitically driven environment, the impact of economic data may be subdued. The Bank of Canada is likely to keep rates unchanged.

The key event this week is undoubtedly the Federal Reserve’s interest rate decision on Thursday at 2:00.

For Powell’s second time presiding over a meeting, the market generally expects rates to remain unchanged. The economic outlook and dot plots are the focus, revealing how the Fed views inflation and interest rate prospects. The December dot plot forecasted one rate cut this year; if this remains unchanged (dovish stance), the dollar may face short-term pressure. If the forecast shifts to no rate cuts this year, it signals a more neutral stance, and the dollar index could challenge 100 again, while US stocks and gold may face tests. Powell’s press conference at 2:30 may provide more insights.

Currently, implied interest rate paths in the market are more hawkish than a month ago, even showing slight expectations for rate hikes.

XAUUSD Gold 1-Hour Chart

Source: TradingView, Forex.com

As shown, gold has been oscillating around $5,000 this week (4970-5040 range), maintaining the weak correction since last week.

A breakout above the upper boundary of the range could trigger bullish attempts to challenge the trendline near 5080/90, but resistance will be more evident. Conversely, a break below the lower boundary could lead to a decline toward 4850, which is both a previous low and a long-term trendline.

Whether gold will find a new direction depends on tomorrow’s early Federal Reserve rate decision. Maintaining a dovish stance (one rate cut this year) would be temporarily bullish for gold, while shifting to neutral (expecting rates to stay unchanged this year) would be bearish.

BTCUSD Bitcoin Daily Chart

Source: TradingView, Forex.com

As shown, Bitcoin’s rebound faces resistance near 76,000. A short-term overbought correction may be needed, with 73,000 worth watching, followed by the lower boundary of the oscillation around 66,600.

However, the weekly reversal pattern and oversold signals suggest the rebound may continue, with sideways upward movement being the main trend. Breaking through the trendline at 79,000 could further clarify the reversal structure and boost bullish confidence.