XAU/USD drops as oil price rebounds, Fed’s policy eyed

• Gold price drops to near $4,050 as oil prices bounce back.
• The attack on Saudi’s oil refinery by Iran-backed Houthis has prompted energy supply risks.
• Investors expect the Fed to leave interest rates unchanged later in the day.

Gold slips 0.3% to near $4,050 in the Asian trade on Wednesday, as oil prices bounce back after a two-day correction. The precious metal is expected to face high volatility as the Federal Reserve (Fed) is scheduled to announce the monetary policy later in the day at 18:00 GMT.

As of writing, the WTI Oil price trades almost 1% higher to near $100.50 after recovering from its two-day low of $98.83.

Oil prices attract bids after Yemen’s Iran-aligned Houthis said on Tuesday that they had hit Saudi Arabia’s biggest oil refinery with a missile, intensifying their strikes against the world’s second-largest crude producer. Saudi authorities did not immediately confirm the strike on the 550,000 barrel per day facility, Reuters report.

Higher oil prices prompt fears of a fresh acceleration in global inflation, a scenario that pressurizes central banks to consider a prolonged hawkish monetary policy stance. Such a case bodes poorly for non-yielding assets like Gold.

Higher oil prices have also helped United States (US) Treasury Yields returning above the 5% mark. Apart from rising energy prices, caution among investors ahead of the Federal Reserve’s (Fed) monetary policy announcement is also supporting US bond yields.

The US Dollar (USD) is also reflecting strength ahead of the Fed’s policy. At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, holds on to three-day gains near 102.40. Technically, a higher US Dollar makes the Gold price an unfavorable risk-reward bet for investors.

According to the CME FedWatch tool, the Fed is almost certain to leave interest rates unchanged in the 3.75%-4.00% range. In the September meeting, the US central bank hiked policy rates by 25 basis points (bps) and signaled at least one more in the remainder of the year.

Economists at Deutsche Bank argue that with policy rates expected to remain on hold, “the interest will therefore be in Chair Warsh’s press conference and how the Fed balances still-elevated inflation and solid growth against the recent tightening in financial conditions.” They anticipate that “the statement itself [is] to contain only limited changes,” but caution that “dissents to a hold are possible,” underscoring the potential for a more divided FOMC even if the headline decision is unchanged.

In the daily chart, XAU/USD trades at $4,046.32, keeping a bearish near-term tone as spot remains below the 20-day Exponential Moving Average (EMA) at roughly $4,121.59. The failure to reclaim this dynamic barrier suggests rallies are still being sold, while the Relative Strength Index (RSI) hovers near 39, reinforcing weak momentum rather than a decisive oversold condition that could trigger an immediate bounce.

On the topside, initial resistance is defined by the 20-day EMA at $4,121.59, and a daily close above this level would be needed to ease downside pressure and hint at a more sustained recovery phase. With no nearby structural supports from the provided dataset, the metal remains vulnerable to further slippage while it trades under its short-term EMA, leaving the burden of proof on bulls to regain control above the $4,120 area.