Gold Recovers After Market Overreacts to Fed Decision

Fundamental Overview

Gold dipped below the $4,300 support level once more on Wednesday after the FOMC decision, but those losses were later reversed. The Fed raised rates by 25 basis points as anticipated and indicated one additional hike in 2026. Officials predicted rates would stay steady through 2027 before declining in 2028.

Traders interpreted the Fed's move as hawkish, despite the decision itself lacking any hawkish elements. The key message from the meeting was the central bank's limited willingness to tighten further. Analysts had expected one rate increase in 2026 and another in 2027.

In contrast, the market had priced a single hike in 2026 and two in 2027. The Fed's projection matched the 2026 figure but fell short on 2027. Consequently, the committee's stance was less hawkish than what the market had anticipated.

Fed Chair Warsh was described as more hawkish than anticipated, but his remarks largely echoed his Jackson Hole address, with slight adjustments to account for the rate increase. Once the initial overreaction subsided, markets recovered losses and returned to levels seen before the FOMC announcement.

Attention now turns to the Middle East, where $100 oil, rising rates, and higher bond yields could increase pressure on President Trump to seek an end to the conflict. Any signs of de-escalation may push oil prices lower. Oil has been the primary force influencing inflation expectations and rate projections across markets. A decline in oil would likely trigger a dovish repricing and lift risk appetite. Conversely, further escalation would have the opposite effect.

Economic indicators also bear watching. When market pricing becomes stretched, even minor surprises can trigger sharp reversals. If upcoming data undershoots expectations and signals economic slowdown, aggressive rate hike expectations may be scaled back, which would be supportive for gold.

Gold Technical Analysis – Daily Perspective

Gold tested the $4,300 support area once more on Wednesday and bounced back, possibly a bullish sign. Buyers may keep buying near this level with a stop loss below the support, targeting a rise to $4,890. Sellers, meanwhile, would need a close below support to build short positions aiming for $3,885.

Gold Technical Analysis – 4-Hour Perspective

A downward trendline on the 4-hour timeframe delineates the bearish trend. A pullback to this trendline could attract sellers with a stop above it, targeting a fall to $3,885. Buyers would seek a break above the trendline to build long positions with $4,890 as the next objective, with $4,510 as an initial resistance.

Gold Technical Analysis – 1-Hour Perspective

On the hourly timeframe, the picture remains similar. Buyers are expected to continue buying near the support zone to push prices toward the trendline, while sellers watch for a breakdown below support for short entries. The Fed decision had little lasting impact.

Upcoming Catalysts

US jobless claims data is due later today. Market participants will closely monitor Middle East developments as they are crucial for rate expectations.