Gold price edges higher ahead of Fed decision; upside potential seems limited.

Gold price moves further away from over a one-week low touched the previous day.
Bets for a less dovish Fed, elevated US bond yields and a bullish USD should cap gains.
Traders keenly await the crucial FOMC decision before placing fresh directional bets.

Gold price (XAU/USD) builds on the overnight bounce from the $2,633 area, or over a one-week low and attracts some buyers during the Asian session on Wednesday. The uptick could be attributed to some repositioning trade ahead of the key central bank event risk, though it is more likely to remain capped as traders might opt to wait for the outcome of the crucial two-day FOMC policy meeting later today. The Federal Reserve (Fed) is widely expected to lower borrowing costs by 25 basis points and adopt a more cautious stance on cutting interest rates going forward.

Hence, the focus will remain glued to the accompanying policy statement, the updated economic projections, which include the so-called dot plot, and Fed Chair Jerome Powell’s comments at the post-meeting press conference. Investors will look for cues about the Fed’s rate-cut path, which will influence the near-term US Dollar (USD) price dynamics and provide a fresh directional impetus to the Gold price. In the meantime, the prospects for a less dovish Fed remain supportive of elevated US Treasury bond yields and should keep a lid on the non-yielding yellow metal.

Gold price lacks bullish conviction amid expectations that the Fed could pause its rate-cutting cycle

The US Census Bureau reported on Tuesday that Retail Sales jumped 0.7% in November, better than the market expectation for an increase of 0.5% and the 0.4% increase recorded in the previous month.
The data was consistent with strong underlying momentum in the economy, though it had little impact on bets that the Federal Reserve will cut interest rates at the end of a two-day meeting on Wednesday.
The robust consumer spending, along with the US economic resilience and warmer inflation prints in recent months, suggests that the Fed could pause its rate-cutting cycle at the January meeting.
The prospects for a less dovish Fed pushed the yield on the benchmark 10-year US government bond to its highest level since November 22 and should act as a headwind for the non-yielding Gold price.
Ukraine claims a blast in Moscow that killed the head of the Russian military’s nuclear and chemical weapons protection forces, Igor Kirillov, on Tuesday, raising the risk of a further escalation of tensions.
The UN’s special envoy for Syria warned that the conflict has not ended even after the ousting of President Bashar al-Assad amid clashes between Turkish-backed and Kurdish groups in the north.
A Palestinian official involved in the indirect negotiations said that there are signs that Israel and Hamas could be moving closer to a Gaza ceasefire and hostage release deal after months of deadlock.
Wednesday’s US economic docket features the release of housing market data – Building Permits and Housing Starts. The focus, however, will remain glued to the crucial FOMC monetary policy decision.
Meanwhile, investors will closely scrutinize the updated economic projections and Fed Chair Jerome Powell’s remarks for cues about the future rate-cut path, which will drive the US Dollar demand.

Gold price needs to surpass the $2,664-2,664 strong barrier for bulls to seize short-term control

From a technical perspective, any subsequent move up might face a hurdle near the weekly top, around the $2,664-2,666 region touched on Monday, ahead of the $2,677 area. A sustained strength beyond the latter should allow the Gold price to reclaim the $2,700 round figure. The subsequent move up could extend further towards the monthly swing high, around the $2,726 zone, above which the XAU/USD is likely to resume its upward trajectory.

On the flip side, the overnight swing low, around the $2,633 region, now seems to protect the immediate downside ahead of the monthly trough, around the $2,614 zone. This is closely followed by the $2,600 mark, which if broken decisively will be seen as a fresh trigger for bearish traders and make the Gold price vulnerable to resume its recent sharp pullback from over a one-month peak touched last week.

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