Gold extends range play below $4,100 as bulls keenly await Fed decision on Wednesday

• Gold kicks off the new week on a positive note as US-Iran diplomacy hopes undermine the US Dollar.
• Falling oil prices ease inflation fears and temper Fed rate hike bets, further benefiting the commodity.
• Traders seem hesitant as the market focus remains glued to this week’s crucial FOMC policy meeting.

Gold (XAU/USD) extends its consolidative price move through the first half of the European session on Monday and remains below the $4,100 mark as bulls seem hesitant ahead of the crucial FOMC meeting this week. Heading into the key central bank event, reviving hopes for a diplomatic resolution to end a five-month-old US-Iran war led to a steep fall in crude oil prices. This helps ease inflation fears and temper US Federal Reserve (Fed) rate hike expectations, which, in turn, is seen undermining the safe-haven US Dollar (USD) and lending some support to the non-yielding bullion.

The US paused its bombing campaign against Iran late on Friday, following 13 consecutive nights of strikes. US ambassador to the United Nations (UN) Mike Waltz said that while forces remained locked and loaded, President Donald Trump wants to give negotiations "a little bit of room". In response, a senior Iranian official told Reuters on Sunday that Tehran will halt its own ​attacks as long as the US does the same, fueling optimism about a lasting path to de-escalation of US-Iran tensions. This resulted in some unwinding of the geopolitical risk premium, which weighs heavily on the buck.

Moreover, the easing of hostilities dragged crude oil prices significantly lower and forced investors to trim their bets for an immediate interest rate hike by the US central bank. The outlook leads to a modest pullback in US Treasury bond yields, which turns out to be another factor that drags the USD away from the vicinity of the monthly high, retested last week. Traders, however, seem hesitant to place aggressive bearish bets on the USD and opt to wait for more cues about the Fed's policy path. Hence, the focus remains glued to the outcome of a two-day FOMC meeting on Wednesday.

Meanwhile, market participants remain skeptical about the halt in attacks. Adding to this, traffic through Bab el-Mandeb fell on July 26 after Iran-backed Houthis in Yemen attacked Saudi oil installations along the coast of the Red Sea. This adds to concerns about significant disruptions to global oil supplies due to the restricted transit through the Strait of Hormuz, which acts as a tailwind for crude oil prices. This helps limit deeper USD losses and keeps a lid on further upside for Gold, warranting some caution for aggressive bullish traders heading into the key central bank event risk.

XAU/USD daily chart

Gold might struggle to make it through short-term range amid mixed setup

The two-way price move since June 19 constitutes the formation of a rectangle on the daily chart. Against the backdrop of the recent breakdown below a technically significant 200-day Simple Moving Average (SMA), this might still be categorized as a bearish consolidation phase and keeps the longer-term downtrend in place.

Meanwhile, momentum indicators have improved, with the Relative Strength Index hovering just under the 50 line and the Moving Average Convergence Divergence (MACD) turning firmly positive. This, however, hints at a corrective rebound rather than a confirmed bullish reversal while price action is capped beneath the long-term average.

On the topside, the top boundary of the trading range near the $4,200 mark is the key resistance to beat. A daily close above this barrier would be needed to ease the broader bearish bias and open the door to a more sustainable advance to the 200-day SMA at $4,493.65. Until that occurs, rallies are likely to be viewed as corrective within the prevailing downtrend.

(The technical analysis of this story was written with the help of an AI tool. Know more.)