Gold approaches $3,700 as weak US Dollar, Fed rate cut bets drive rally

NEW YORK (September 16) Gold (XAU/USD) extends its record-breaking rally on Tuesday, trading just shy of the $3,700 psychological level. The precious metal continues to draw strength from a broadly weaker US Dollar (USD) and falling US Treasury yields, as traders position ahead of the Federal Reserve’s (Fed) monetary policy decision on Wednesday.

The Greenback remains under broad pressure with the US Dollar Index (DXY) falling to multi-week lows, reflecting broad-based weakness as markets fully price in a 25-basis-point (bps) Fed rate cut. Meanwhile, US Treasury yields stay subdued across the curve, reducing the opportunity cost of holding non-yielding assets like Gold.

With the September rate cut widely seen as a done deal, investors will be closely watching the Fed’s updated economic projections and dot plot. Markets will be parsing Fed Chair Jerome Powell’s press conference for clues on how far and how fast the easing cycle could extend. A cautious or less dovish tone could trigger a near-term pullback, while confirmation of a steady easing path may keep bullion firmly bid above recent highs.

In the meantime, attention turns to US Retail Sales figures due later on Tuesday. Weak consumer spending would support the dovish narrative, while stronger spending data could test Gold’s momentum.

Market movers: Markets eye Fed decision amid political pressure

• The Fed’s monetary policy meeting takes place under unusual strain, with US President Donald Trump seeking greater sway over monetary decisions and legal challenges targeting the central bank’s leadership.
• Trump ramped up pressure on the Fed ahead of Wednesday’s decision, urging Chair Powell on Truth Social to deliver a rate cut larger than anticipated. The US President argued that a more aggressive move is long overdue and would provide a strong boost to the housing market.
• On Monday, a US appeals court blocked an attempt to remove Fed Governor Lisa Cook, ruling that President Trump’s claims did not meet the “for cause” threshold required by law. Cook is therefore expected to vote at Wednesday’s policy meeting.
• In a narrow 48-47 Senate vote, Stephen Miran, a top economic adviser to President Trump, was confirmed to the Federal Reserve Board on Monday. Miran is expected to be seated in time to participate in Wednesday’s vote. Some analysts believe that he may advocate for a larger rate cut than markets currently expect, raising questions over political influence on the Fed’s policy path.
• Geopolitical tensions add another layer of support for Gold. Beyond the macro backdrop of a weaker US Dollar and subdued Treasury yields, heightened geopolitical risk is reinforcing safe-haven flows. Israel launched a major ground offensive in Gaza City on Tuesday, escalating its conflict with Hamas, while Ukraine intensified drone and missile strikes on Russian refineries, disrupting energy infrastructure.
• Along with Retail Sales, the US economic docket will feature Industrial Production. Retail Sales are expected to increase 0.2% in August from 0.5% in July. Industrial Production is projected to decrease by 0.1%.

FXStreet