XAU/USD buyers re-emerge ahead of key Fed event risk

• Gold price rises after earlier retreat from record highs as Fed verdict looms.
• The US dollar is back in the red amid pre-Fed caution and sluggish Treasury yields.
• Gold price could retest lifetime highs at $2,590 on the back of bullish daily RSI and while breaking above $2,560.

The price of gold is finding fresh demand near $2,570 on Wednesday morning as buyers look to fight back from the previous day’s correction from record highs of $2,590. Traders, however, may refrain from placing new directional bets on the gold price ahead of all-important monetary policy announcements from the US Federal Reserve (Fed).

The gold price follows the Fed’s interest rate decision and Powell’s speech

On Fed Day, markets continue to price in a 65% probability of a 50 basis point (bps) interest rate cut, CME Group’s FedWatch Tool showed, reviving selling interest around the US dollar (USD). as US Treasuries yield too, turn defensive amid market caution.

Thus. The price of gold is trying to regain the all-time high near $2,600, with an eye on the Fed verdict, Chairman Jerome Powell’s press conference and the Dot Plot chart, all of which will help gauge the future policy action of the US central bank.

If the Fed offers a 25 bps rate cut later this Wednesday, it could fuel a sharp rally in the US dollar. However, the immediate reaction to the Fed’s announcements could be overshadowed by the implications of the Fed’s projections and Powell’s words. Therefore, the price of gold remains subject to intense volatility during the Fed event.

A downright dovish outcome and rate forecasts from the world’s most powerful central bank could send gold prices back to record highs at the expense of the US dollar. “A dovish Fed on a substantial easing path should generally lead to a weaker dollar,” said Nathan Swami, head of currency trading at Citi in Singapore.

Conversely, if the Fed acknowledges potential risks of rising inflation and maintains a cautious tone, it could bring the hawks back into play, weighing negatively on the price of non-interest-bearing gold.

The price of gold briefly corrected from Tuesday’s record highs thanks to a burst of gains in the US dollar ahead of the Fed event, while strong US retail sales data also helped boost USD demand. U.S. retail sales rose 0.1 percent in August, data showed on Tuesday, against expectations for a 0.2 percent contraction. The data somewhat eased fears of a potential US “hard landing”.

Gold Price Technical Analysis: Daily Chart

Gold buyers are regaining control as the 14-day Relative Strength Index (RSI) remains comfortably above the 50 level, falling from near overbought territory.

Optimism prevails as long as they defend the one and a half month old symmetrical triangle target, now supporting at $2,560.

That said, immediate resistance is seen at the record $2,590 level, above which the $2,600 level will be tested.

Acceptance above this level will require a test of the $2,650 psychological barrier.

If the Fed disappoints the doves, the price of gold could witness another sell-off that could challenge the August 20 high of $2,532.

Further declines will threaten the 21-day simple moving average (SMA) at $2,522, below which the $2,500 threshold will be on sellers’ radars.