Gold Holds Firm Despite Stronger US Dollar and Hawkish Fed

Gold has held up remarkably well despite a stronger US dollar, rising rate expectations and increasingly hawkish Fed rhetoric. With DXY momentum beginning to fade near resistance, a short-term dollar pullback could provide gold with room to rebound.

Gold Holds Firm as Fed Hawkishness Tests the US Dollar Rally

While the Fed delivered a hawkish hike on Wednesday, effectively signalling another move by December, they kept us guessing over whether we’ll see the further tightening that money markets are pricing into 2027. However, the increasingly hawkish commentary since the FOMC meeting appears to be part of a broader narrative that could be laying the groundwork for further hikes next year.

Concerns that the AI investment boom is adding to demand could also prove longer lasting than the supply-driven inflation shock from oil. And the fact that the Nasdaq is on the cusp of breaking to a new high despite a hawkish Fed highlights just how much enthusiasm remains around this segment of the technology sector.

Fed Officials Sing from the Same Hawkish Hymn Sheet

Noting that the current policy rate remains on the “accommodative side,” St. Louis Fed President Alberto Musalem said on Monday that further hikes would likely be required to quell inflation, and that acting sooner could be preferable to waiting. He suspects supply shocks and strong demand will keep inflation elevated.

Austan Goolsbee has also shifted to a more hawkish stance, warning that inflation may increasingly reflect overheating demand rather than simply rising energy costs. If correct, he thinks tightening may need to be more aggressive and front-loaded. Jeffrey Schmid made a similar case on Friday.

While none of the three are current FOMC voters, the consistency of their message has caught my attention. I have noticed over the years that Fed officials can suddenly start singing from the same hymn sheet when markets fail to fully embrace the message delivered at an FOMC meeting. Whether coordinated or not, this latest round of commentary has that feel to it — and could be laying the groundwork for further hikes in 2027.

Source: CME

DXY Hesitates Despite Hawkish Fed, Gold Holds Firm

Yet the US dollar does not appear entirely convinced. The DXY weekly chart remains constructive, but the daily chart has struggled to extend its post-FOMC rally despite an increasingly hawkish stream of Fed commentary. That leaves room for a near-term pullback before the broader dollar rally potentially resumes.

Such a retracement could provide some breathing room for gold. The metal has been surprisingly resilient in the face of a stronger dollar and higher US rate expectations, with buyers continuing to defend support. If DXY does correct lower, gold could therefore be positioned for another bounce — even if the broader rates backdrop remains a headwind.

US Dollar Index (DXY) Technical Analysis

While the weekly chart shows a potential rising wedge pattern — which projects a downside target near the January low — I am open to the US dollar eventually breaking above this year’s high if the Fed continues to beat its hawkish drum. A bullish engulfing candle formed last week after the FOMC meeting, following a marginally higher low to show demand is building above 99.

While this paints a bullish picture, I also note that bulls are struggling to maintain last week’s momentum despite recent hawkish Fed comments. A shooting star candle formed on Friday, and the US dollar index is yet to break above last week’s high. Even if it does, the 200-week EMA sits just above 100.50, making it a likely resistance level over the near term. So, despite its bullish structure above 99, I am also on guard for a minor pullback on the daily chart. And that could bode well for gold over the near term, which is holding above support.

Source: ICE, TradingView

Gold Futures (GC) Technical Analysis

Despite the surge in US dollar strength, gold has remained resilient. While I do not claim to know what the bullish trigger may be, I can make the technical assumption that gold may benefit from a decent bounce if the US dollar index retraces lower.

The weekly chart shows the four-week pullback from ~4600 printed a small bullish hammer around its 50-week EMA, with the lower-volatility range showing bears are losing steam. The daily chart shows a bullish engulfing day around 4600, the 50-day EMA and a prior weekly VPOC. Prices are gently retracing against that move, but my near-term bias for gold is now bullish while prices hold above last week’s low of 4277.

The daily swing high around 4555 and the 4600 handle make potential interim targets. Whether gold can retest the cycle highs or break above them is likely to depend on the strength of the US dollar and Fed policy expectations.

Source: ICE, TradingView