Gold prices are trading in a narrow range as market participants remain cautious and prefer not to take risks ahead of the Federal Reserve's decision.
Lower expectations for a Fed rate cut are increasing demand for the US dollar, putting pressure on the precious metal.
Gold investors have adopted a cautious stance, waiting for the outcome of the Federal Open Market Committee (FOMC) meeting and key US economic data before making any directional trades.
According to FX Street, gold (XAU/USD) has struggled to gain momentum and continued to trade sideways during Tuesday's Asian session.
The prevailing sentiment points to a growing consensus that the Federal Reserve will maintain higher interest rates for an extended period of time, supported by solid signs of inflation.
This outlook is leading to renewed strength in the US dollar and pushing investors away from gold as a safe haven. Nevertheless, the downside for gold remains limited as traders prefer to wait for clarity on the Fed's rate cut path before making new commitments.
All market attention is now focused on the two-day FOMC meeting on April 30th and May 1st, as well as the release of a key Non-Farm Payrolls (NFP) report on Friday. Analysts believe that these events could play a key role in shaping the demand dynamics for the US dollar in the near term, and provide a significant boost to the non-yielding gold price.
The US Personal Consumption Expenditure (PCE) price index released on Friday showed that inflation remains high, supporting the view that the Fed will not start cutting interest rates until September.
The overall bullish risk sentiment and the Fed's hawkish stance are supporting the US dollar, which is ultimately a major drag on gold's potential.
In addition, easing fears of escalating conflict in the Middle East is also hindering gold's rise as a safe-haven asset. Traders prefer to wait for signals on the Fed's rate cut plans before making new directional trades.
The Fed will release its policy statement at the end of its two-day meeting on Wednesday. Investors will be looking for clues as to the potential path of the Fed's rate cut, which will influence the dollar's price dynamics and help determine the short-term direction of the XAU/USD.
At the time of writing, gold is trading at $2,325.97, down 0.40% over the past 24 hours.
From a technical perspective, gold has run into resistance at the 200-hour simple moving average (SMA) at $2,346. Behind this is the 50% Fibonacci level at $2,352-2,353, a break of which could push gold to the next major resistance zone at $2,371-2,372. If the momentum continues, gold could break through to the psychological $2,400 level and the all-time high of $2,431-2432 reached earlier this month.
However, further selling could trigger a retest of last week's low at $2,292-2,291.