By Gold slipped slightly on Wednesday morning as its two-day rally lost momentum and crude oil prices rebounded. The metal fell to $4,040, a few dollars below Tuesday’s high of $4,069. The sell-off could continue as attention turns to the Federal Reserve’s interest rate decision.
Gold drops as crude oil prices rebounds
Gold pulled back as crude oil prices bounced back. Brent, the global benchmark, rose to $115, while the West Texas Intermediate (WTI) rose to $101.40. Natural gas prices also bounced back by 1.78% to $3.05.
Oil prices rose after the Wall Street Journal reported on President Donald Trump’s plans to launch major attacks against Iran after the midterm. According to the paper, the Trump administration has warned its Gulf allies of a potential intense period of fighting as it seeks to force Iran to the negotiating table.
Indeed, there are signs that the two sides were preparing for an attack. For example, the US has sent more capabilities in the region, while Israeli jets moved closer to Iran’s airspace this week.
A renewed period of sustained attacks would be intense. Iran has warned that it will escalate by launching attacks against key targets in the regiom. Its attack targets include oil and gas infrastructure projects in the region.
Iranian officials have also pointed to the success that the Houthis have had in their attacks against Saudi Arabian targets. They believe that their capabilities are more advanced and that their attacks will cause substantial damage.
Iran has also warned that it will attack other civilian infrastructure projects in the region. These include airports, desalinition plants, and bridges. The new round of attacks could be more intense than in the previous phases.
Federal Reserve interest rate decision
Gold price will be in focus as the Federal Reserve delivers its interest rate decision later today. Economists expect the bank to leave interest rates unchanged between 3.75% and 4% as officials observe the impact of the last hike. A hawkish Federal Reserve decision will be bearish for gold and other precious metals, and vice versa.
Recent data suggests that the Fed will embrace caution in this meeting. A report earlier this month showed that the US economy created just 29k jobs last month, while the unemployment rate ticked higher to 4.3%.
Another report showed that the country’s inflation continued rising, with the headline consumer price index (CPI) rose 3.7%, moving further away from the Fed’s target of 2.0%.
The US will publish the latest GDP and personal consumption expenditure (PCE) report on Thursday.
Gold price technical analysis
XAU price chart | Source: TradingView
The daily chart shows that gold peaked at $4,699 in August and then retreated to below $4,000 last Friday. It then attempted to recover in the last two days as investors bought the dip.
Gold remains below the 50-day moving average and the Supertrend indicator. These technicals are highly bearish for gold. The risk, however, is that it is now sitting at an important support level, where it failed to move below several times this year. It has formed a triple-bottom pattern, which may suggest a reversal is nearing.
However, there is a risk that gold will drop further and potentially retest the key support level of $3,950.
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