XAU/USD. Analysis and Forecast

[Ben Graham]

Gold continued its intraday rally, breaking above the psychological level of $4000. It appears that the precious metal has ended its three-day losing streak, as investors await the results of the two-day FOMC meeting before determining the next trend direction. Meanwhile, dovish expectations regarding the Federal Reserve's interest rate policy remain the main factor driving capital away from the less profitable yellow metal.At the same time, the U.S. dollar has paused ahead of the announcement following the monetary policy meeting. Signs of progress in trade discussions between the U.S. and China have eased fears of a full-scale trade conflict between the world's two largest economies, pushing gold prices, the traditional safe-haven asset, slightly below the $3900 level on Tuesday—their lowest level in more than three weeks.

In fact, over the weekend, senior U.S. and Chinese officials agreed on the framework of a potential trade deal, which U.S. President Donald Trump and Chinese President Xi Jinping are expected to discuss at the summit this Thursday.

However, expectations that the Federal Reserve will cut rates by 25 basis points following its two-day meeting on Wednesday—and will likely lower them again in December—are helping to limit the downside for the non-yielding yellow metal.

That said, gold's upward potential remains capped for now, as traders await the monetary policy announcement.

On Tuesday, the U.S. Senate failed for the 13th time to pass the Republican funding bill to end the government shutdown, underscoring the political stalemate in Congress. Meanwhile, a U.S. federal judge issued a preliminary injunction permanently blocking the Trump administration from firing federal employees during the ongoing shutdown.

The United States also imposed new sanctions on two of Russia's largest oil companies. In addition, the White House canceled the planned meeting between President Trump and Russian President Vladimir Putin in Budapest. These developments point to a deterioration in U.S.–Russia relations, maintaining geopolitical risks and potentially supporting demand for gold as a safe-haven asset.

From a technical perspective, the close below the $4000 level in yesterday's late trading could serve as a new bearish signal. Moreover, the Relative Strength Index (RSI) on the daily chart has just begun to show negative momentum, suggesting a continuation of the recent corrective decline observed over the past week.

However, a sustained recovery above the $4000 level could trigger short-covering rallies, pushing gold prices toward the $4050 level.

On the other hand, the Asian session low near $3915 currently provides support above the psychological $3900 level. If the next support level around yesterday's low at $3886 is broken, gold will become vulnerable to further downside pressure.

The material has been provided by InstaForex Company - www.instaforex.com