Gold Rebounds Ahead of Federal Reserve Interest Rate Decision

Gold prices rebounded on Wednesday as traders trimmed their bearish positions ahead of the Federal Reserve's interest rate decision. The Fed is widely expected to deliver its first rate hike since July 2023, with a 25 basis-point increase taking the federal funds target range to 3.75%-4.00%. A modest pullback in US Treasury yields and a steady US Dollar also contributed to gold's recovery.

At the time of writing, XAU/USD traded around $4,350, up 1.30% on the day. The US central bank will announce its decision at 18:00 GMT, followed by Fed Chairman Kevin Warsh's press conference at 18:30 GMT.

Strategists at ING expect the Fed to deliver a 'consensus 25bp' rate increase to 4.0% today, noting that markets are pricing in 23bp for today and 52bp by year-end. A surprise hold would likely deliver a big blow to the Dollar through dovish repricing in front-end rates and a selloff in the back end.

However, with a quarter-point increase almost fully priced in, gold's reaction is likely to depend more on the updated Summary of Economic Projections, including the dot plot, and Warsh's post-meeting remarks. A hawkish Fed signal pointing to more rate increases could weigh on gold, but if the Fed avoids committing to another rate hike, the metal could build on its recovery.

The technical analysis suggests a neutral-to-capped bias, with price supported by medium-term averages but still below the broader downtrend marker. The Relative Strength Index (RSI) at 48 underscores a flat momentum profile, while the Moving Average Convergence Divergence (MACD) histogram remains in negative territory.