Gold threatened with deeper drop below $4,300 before Fed decision

Gold has come under pressure at the start of the week, with the technical outlook turning increasingly precarious.

Traders are positioning ahead of the Fed decision, and prices have dropped back below $4,300. A stronger dollar, which has climbed to a two-week high, and high Treasury yields continue to pressure bullion. Markets are currently pricing in nearly a 90% probability of a 25-basis-point rate hike from the Fed this week.

Although the fundamental picture appears clear, the more notable development for gold today is arguably the technical setup.

Gold is now threatening to breach a cluster of technical support levels that have kept the downside contained.

The first level is the 100-day moving average at approximately $4,331, quickly followed by the 50.0 Fibonacci retracement of the July-to-August rally at roughly $4,328.

Since these two levels are virtually stacked on top of one another, a loss would significantly weaken gold's technical structure.

A more critical threshold, however, sits directly below those levels.

Since August, price action has formed what appears to be a head-and-shoulders pattern, with its neckline located approximately in the $4,290-$4,310 area. A sustained move below that region would turn the current drop into a more significant technical signal, rather than just another pullback within the broader range.

Such a breach would then bring the 61.8% Fibonacci retracement level around $4,241 into focus, though some may argue that the technical momentum from that move could push prices as low as $4,000 next.

That said, timing is crucial. For the moment, the $4,290-$4,310 zone remains the key level to monitor. A sustained break would transform what has thus far been a measured pullback into a more pronounced technical decline.

The wildcard is the Fed's decision on Wednesday. With markets pricing in nearly a 90% probability of a 25-basis-point rate hike, gold's direction will largely depend on whether the central bank meets those expectations or springs a surprise with its guidance.