Gold (XAU/USD) Soars to Breach $3700/oz. FOMC Meeting Next, Will the Rally Continue?

[Ben Graham]

Gold prices soar to tap $3700/oz as Fed rate cut bets ramp up. The precious metal continues to benefit from the uncertainty around Fed policy moving forward beyond the September 17 meeting.

The expectations for a rate cut and a dovish Fed moving forward has led to US Dollar weakness and falling US Treasury yields which have aided Gold's rise. The US dollar is getting weaker, with its value falling against other major currencies.

This is because financial markets are now pricing in around 95% probability that the Federal Reserve will cut interest rates by 0.25% and expect a more dovish outlook moving forward.

At the same time, returns on US government bonds are also staying low. This makes assets like gold, which don't pay interest, more attractive to investors because they aren't giving up much in potential earnings by not holding bonds instead

The question for market participants right now is how much further can the gold rally go?

Fed Policy Holds the Key

On Wednesday, the much anticipated Federal Reserve decision will be the main focus for financial markets. It does appear as though a 25bps rate cut has largely been priced in and thus we have seen many analysts talk about the potential of a ‘buy the rumor, sell the fact’ reaction to the rate decision.

With that in mind, markets may be more focused on the dot plot and how the Fed sees the rate outlook moving forward. The calls by the Trump administration as well as a weakening labor market has seen markets price in more aggressive rate cuts over the next 12 months.

A dovish Fed outlook could fuel the Gold rally and push the precious metal toward the $3800/oz handle. A more hawkish outlook or no changes to the dot plot could see the Gold prices finally drop and pullback toward the $3600/oz handle.

A lot rests on the Fed decision and outlook tomorrow. For more on this read Guide to the FOMC statement and September SEP: Key takeaways and what to watch

Fed Independence Concerns Linger

The Fed meeting is holding its monetary policy meeting at a difficult time. US President Donald Trump is actively trying to influence their decisions, and there are legal challenges against the Fed's leadership which has led to concerns around Fed independence which is also aiding the Gold rally.

Leading up to the meeting, President Trump has been pressuring Fed Chair Jerome Powell on social media to make a bigger interest rate cut than what is expected. Trump believes that a more significant cut is overdue and would greatly help the housing market.

In a related development, a U.S. appeals court stopped an attempt by President Trump to remove Fed Governor Lisa Cook from her position, ruling that his reasons were not legally sufficient. This means Lisa Cook is expected to participate in Wednesday's important vote.

Additionally, Stephen Miran, a key economic advisor to President Trump, was narrowly confirmed by the Senate to join the Federal Reserve Board. Analysts believe that Miran might push for a larger interest rate cut than what most people expect, which keeps the question about how much political influence might affect the Fed's decisions.

Other Factors Supporting Gold Prices

Gold is receiving an extra boost from heightened global tensions, which are pushing investors toward safe-haven assets.

This increase in geopolitical risk is primarily driven by two major developments: an escalation of the conflict between Israel and Hamas, as Israel launched a significant ground offensive in Gaza City on Tuesday, and an intensification of drone and missile strikes by Ukraine on Russian refineries, which is disrupting Russia's energy infrastructure.

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Technical Analysis - Gold (XAU/USD)

From a technical standpoint, Gold broke out of the bull flag pattern on a four-hour timeframe before rallying to its potential target around the $3700/oz handle.

We are seeing a pullback since then with the latest four hour candle closing as a hanging man, which hints at further downside.

Given the rally this week, we could see a bit of a pullback as some market participants may look to take profit ahead of the FOMC meeting.

The period-14 RSI is also in overbought territory. A break back below the 70 level on the RSI usually signals a shift in momentum and could lead to a short-term push lower.

However, we have seen similar attempts at a pullback since the backend of last week and each time buyers returned with conviction to print fresh highs.

Thus there is a possibility that this could continue heading into the US Fed rate decision.

Gold (XAU/USD) Four-Hour Chart, September 16, 2025

Source: TradingView (click to enlarge)

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