Gold remains confined in a range as traders await Fed signals; $3,700 holds the key

• Gold oscillates in a narrow band during the Asian session on Thursday amid mixed cues.
• Powell’s remarks raised questions about the Fed’s rate-cut path and underpinned the USD.
• Geopolitical risks act as a tailwind for the commodity ahead of important US macro data.

Gold (XAU/USD) extends its sideways consolidative price below below the $3,750 level through the Asian session on Thursday, though it manages to hold above the previous day’s swing low. Federal Reserve (Fed) Chair Jerome Powell’s cautious remarks earlier this week might have tempered market expectations for a more aggressive policy easing and acted as a headwind for the non-yielding yellow metal. That said, a combination of factors offers support to the commodity.

Traders still expect the US central bank to lower borrowing costs again in October and December, following a 25 basis points rate cut earlier this month, amid signs of a softening labor market. This, in turn, keeps a lid on the overnight strong US Dollar (SDU) rally to a two-week high and holds back traders from placing aggressive bearish bets around the Gold. Moreover, rising geopolitical tensions and the cautious market mood contribute to limiting the losses for the safe-haven precious metal.

Daily Digest Market Movers: Gold traders opt to wait for this week’s important US macro data

• Federal Reserve (Fed) Chair Jerome Powell’s comments earlier this week pushed the US Dollar to a two-week top and weighed heavily on the non-yielding Gold price on Wednesday. Powell tried to push back against expectations of more interest rate cuts and said that easing too aggressively could leave the inflation job unfinished and necessitate a reversal of course.
• Traders, however, still expect the US central bank to lower borrowing costs again in October and December, following a 25-basis-point rate cut earlier this month. This was the first rate cut since December amid concerns about a softening US labor market. Moreover, the dovish outlook caps any further USD gains and offers some support to the commodity.
• US President Donald Trump escalated his rhetoric against Russia and said on Tuesday that he believes NATO member countries should shoot down Russian aircraft if they enter their airspace. Trump added further that Ukraine, with the support of the European Union and NATO, could win back all of the territory Russia has captured since its invasion.
• This marked a significant shift in Trump’s attitude toward Russia. In response, Kremlin spokesperson Dmitry Peskov declared on Wednesday that Russia would continue its offensive on Ukraine to ensure its interests and achieve its goals. Adding to this, Peskov hit back at Trump’s claim and said that the idea that Ukraine can recapture something is mistaken.
• Trump reportedly promised Arab and Muslim leaders that he would not allow Israeli Prime Minister Benjamin Netanyahu to annex the West Bank. Meanwhile, Iran-backed Houthis forces in Yemen claim responsibility for a drone strike, which hit the Israeli city of Eilat on Wednesday. This keeps geopolitical risks in play and underpins the safe-haven commodity.
• Traders now look forward to important US macro releases and speeches from influential FOMC members for some meaningful impetus. The key focus, meanwhile, will be on the US Personal Consumption Expenditure (PCE) Price Index on Friday, which will play a key role in driving the USD demand and determining the near-term trajectory for the XAU/USD pair.

Gold needs to weaken below $3,700 to back the case for any further corrective decline

From a technical perspective, this week’s failure ahead of the $3,800 mark could be seen as the first sign of a possible bullish exhaustion amid still overbought Relative Strength Index (RSI) on the daily chart. That said, last week’s breakout through the $3,700 mark was seen as a key trigger for the XAU/USD bulls and backs the case for the emergence of some dip-buying near the said handle. A convincing break below the latter, however, might prompt some technical selling and drag the Gold price to the $3,650 intermediate support en route to the $3,610-$3,600 region.

On the flip side, momentum beyond the Asian session high, around the $3,752 area, might confront some resistance near the $3,765-3,766 region. The subsequent move up would set the stage for a move towards retesting the all-time peak, around the $3,790 area. Some follow-through buying and acceptance above the $3,800 mark would set the stage for an extension of the recent well-established uptrend witnessed over the past month or so.