Forex Advisory

Gold started the week under pressure, falling $50, or 1.14%, on Monday to around $4,340 per futures contract — its lowest level so far this month. The decline came as expectations for a Federal Reserve rate hike at the conclusion of Wednesday's FOMC meeting increased sharply. The FedWatch tool showed the probability of a 25-basis-point hike reaching nearly 95% before easing slightly to around 92%. If implemented, the increase would take the federal funds target range to 3.75%–4.00%. The shift toward a more hawkish Fed outlook followed renewed turmoil in the Middle East, which pushed oil prices higher. Over the weekend, drone strikes damaged pumps on a major Saudi oil pipeline, forcing the pipeline to shut down. A vessel was also attacked, prompting the crew to evacuate; one sailor reportedly died and others were injured. The attacks also delayed a scheduled meeting concerning the Strait of Hormuz. The stronger U.S. dollar added further pressure to gold. The U.S. Dollar Index gained 0.36% on Monday, while the yield on the 10-year Treasury note moved above 5%. Rising Treasury yields and a stronger dollar generally create a less favorable environment for gold. Tuesday's session was considerably calmer. Gold futures declined by just $6.60, or 0.15%, settling around $4,333.40. The relatively small decline following Monday's sharp selloff suggests that much of the market's attention is already focused on this week's main event: the Federal Reserve's two-day September policy meeting, which began Tuesday. This is Chairman Kevin Warsh's third FOMC meeting since taking over from Jerome Powell in May. His hawkish comments at last month's Jackson Hole symposium have played a significant role in increasing expectations for a rate hike. Warsh said he saw limited evidence that inflation had meaningfully improved, helping push the probability of a rate increase from roughly two-thirds in late August to approximately 92.5% by Tuesday. If the Fed raises rates Wednesday, it would represent its first increase since 2023 and would be one of Warsh's most significant policy decisions since becoming chairman. His approach has also differed from previous Fed leaders, particularly in providing less forward guidance about future policy. Meanwhile, the inflation backdrop has become more challenging. Crude oil prices continued to rise Tuesday, with Brent crude trading above $105 per barrel and West Texas Intermediate near $102. Both benchmarks reached levels not seen since the spring as Saudi Arabia's East-West pipeline remained offline following the drone attack. Satellite imagery reportedly showed significant fire damage at the pumping station, while Saudi Aramco has not provided a firm timeline for repairs. The disruption has left Saudi Arabia more dependent than usual on the Strait of Hormuz for oil shipments. Energy Secretary Chris Wright said Tuesday that he expects the pipeline to resume operations soon, although oil markets remain focused on the uncertainty surrounding the disruption. Rising energy prices have also increased concerns about inflation, contributing to further pressure on Treasury bonds. The 10-year Treasury yield climbed as high as 5.04% Tuesday before settling near 5.01%, marking its fifth consecutive daily increase and its highest level since July 2007. Inflation remains above the Federal Reserve's 2% target, with headline inflation at 3.4% in August and core inflation at 2.4%. These figures are keeping pressure on policymakers to maintain a hawkish stance. The Bank of Japan is also widely expected to raise interest rates Friday, potentially creating an unusual period of synchronized monetary tightening among major central banks. From a technical perspective, Tuesday's pause in gold's decline appears more like a temporary consolidation than a confirmed reversal. Gold remained above the important $4,286 support level, which has held during previous pullbacks. On the upside, resistance is concentrated between $4,340 and $4,400 — the area from which Monday's selloff began. A sustained close above $4,340–$4,400 would weaken the current bearish technical setup and could signal a recovery. Conversely, a decisive break below $4,286 could expose gold to further downside, with the low $4,200s becoming the next potential support area. Overall, gold remains under short-term pressure as markets focus on the Federal Reserve, rising Treasury yields, a stronger dollar, and elevated oil prices. The key levels to watch are $4,286 on the downside and $4,340–$4,400 on the upside.