Gold ends two-day losing streak, have bulls shaken off disappointment?

During the US trading session on Friday (September 19), gold (XAU/USD) regained some of its losses, ending a two-day decline following mid-week volatility triggered by the Federal Reserve’s interest rate decision. Spot gold traded around $3,668, with gains of nearly 0.65%.

On Wednesday, the US central bank cut the federal funds rate by 25 basis points to a range of 4.00%-4.25%, a move that was fully priced in by the market. Following the announcement, gold prices briefly surged to a record high near $3,707 but quickly retreated as Fed Chair Jerome Powell’s remarks during the press conference were less dovish than expected, triggering a significant rebound in the dollar and US Treasury yields.

Chairman Powell stated that the Fed saw no need for rapid adjustments to interest rates, describing this cut as a ‘risk-management rate cut’ aimed at addressing signs of a slowing labor market and providing a buffer to the economy. He added that policy is ‘not on a preset path’ and will continue to be data-dependent, indicating that the Fed will adopt a cautious approach rather than embarking on an aggressive easing cycle.

Despite a stronger dollar and rising Treasury yields, spot gold rebounded on Friday as traders assessed the impact of the Fed’s monetary policy outlook. Markets have begun pricing in the possibility of two more rate cuts by the end of the year, which has cushioned gold’s downside risks; however, elevated yields and a resilient dollar are limiting near-term prospects, capping further upside potential.

The dollar strengthened alongside rising yields as the Fed signaled a gradual easing path.

Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, said on Thursday that the neutral rate may have risen to around 3.1%, implying that monetary policy is less restrictive than previously thought. He supported this week’s rate cut and believes that two additional 25-basis-point cuts are appropriate by year-end, given the risk of a sharp rise in unemployment. Kashkari emphasized the need for flexibility in policy, noting that if the labor market remains strong or inflation accelerates again, the Fed might pause rate cuts; however, if employment conditions worsen further, rate cuts could accelerate. He also added that he is open to raising rates again if economic conditions warrant it.

Fed Governor Milan stated on Friday that he is not concerned about tariffs causing inflation, as the US is more resilient and flexible compared to its trading partners. With policy rates significantly above the neutral level, monetary policy remains highly restrictive. The longer the Fed maintains its tight stance, the greater the risks to the labor market. Markets may have originally anticipated a more dovish signal from the Fed meeting.

The US Dollar Index (DXY) extended its post-Fed rebound, rising from a low since February 2022 (around 96.22). The index hovered near 97.62, close to a five-day high.

According to the CME FedWatch Tool, markets assign a 91% probability to a 25-basis-point rate cut in October and an almost 80% chance of another cut in December. This aligns with the Fed’s updated dot plot, which indicates an additional 50 basis points of easing for the remainder of the year.

Technical Analysis: Spot Gold Consolidates Near $3,650

Spot gold is testing a key support level near $3,650, which closely aligns with the 50-period Simple Moving Average (SMA) on the 4-hour chart, making it a critical area to watch. The price is currently trading below the 21-period SMA, which acts as immediate resistance at $3,668, suggesting a bearish short-term bias.

The Relative Strength Index (RSI) on the 4-hour chart is hovering around 49, reflecting neutral momentum and indicating that the market is in a consolidation phase rather than showing a strong directional preference.

On the downside, $3,630 has emerged as a short-term bottom, with repeated lower wicks signaling buyers stepping in during price declines. A break below this level would expose stronger support at $3,600. A decisive break below $3,600 would signal a shift in market structure, potentially paving the way for a deeper correction phase.