Gold pulls back as USD recovery counters Fed dovishness and geopolitical risks

• Gold looks to extend the post-FOMC pullback from levels beyond the $3,700 round figure.
• A further USD recovery from a multi-year low is seen weighing on the XAU/USD pair.
• The Fed’s dovish stance and rising geopolitical tensions could support the precious metal.

Gold (XAU/USD) turns lower for the second straight day on Thursday following an Asian session uptick to $3.672 region and seems poised to extend the previous day's retracement slide from the record high. Federal Reserve (Fed) Chair Jerome Powell indicated that Wednesday's move to lower interest rates was a risk management cut and added that he doesn't feel the need to move quickly on rates. This, in turn, assists the US Dollar (USD) to build on the previous day's solid intraday recovery from the lowest level since February 2022 and exerts some pressure on the non-yielding yellow metal.

Apart from this, a generally positive risk tone is seen as another factor undermining demand for traditional safe-haven assets, including Gold. Meanwhile, the US central bank signaled two more interest rate cuts by the end of this year. This, along with geopolitical risks stemming from the intensifying Russia-Ukraine war and conflicts in the Middle East, could offer some support to the commodity and help limit further losses. Nevertheless, Thursday's modest slide could be seen as a first sign of a possible bullish exhaustion, which could set the stage for some meaningful corrective decline in the near term.

Daily Digest Market Movers: Gold is pressured by a firmer USD and receding safe-haven demand

• The Federal Reserve, as was widely anticipated, lowered its benchmark rate for the first time since December, by 25 basis points, putting the overnight funds rate in a range between 4.00%-4.25%. Moreover, the US central bank saw the need for two more rate cuts this year amid worries about a softening US labor market. This, in turn, lifted the non-yielding Gold to a fresh all-time high, levels beyond the $3,700 mark on Wednesday.
• US Treasury bond yields and the US Dollar recovered sharply after a brief slump that followed the announcement, as Fed Chair Jerome Powell said that risks to inflation are tilted to the upside. Speaking to reporters, Powell added that the central bank is in a meeting-by-meeting situation regarding the outlook for interest rates. This, in turn, weighed on the non-yielding yellow metal and led to a dramatic intraday turnaround.
• Alongside the policy decision, the US central bank also published updated economic forecasts, and now expects the economy to grow by 1.6% this year, 1.8% in 2026, and 1.9% in 2027. Meanwhile, the Fed’s core PCE estimate, which excludes the more volatile food and energy components, implies a 3.1% pace of inflation this year, 2.6% next year, and 2.1% in 2027, while the long-term forecast remained unchanged at the 2% target.
• On the geopolitical front, Russia's Defence Ministry said that our troops are advancing in practically all directions in the zone of the special military operation. Separately, German Chancellor Friedrich Merz warned that Russia has been testing the limits by violating NATO and EU airspace. Moreover, European Commission head Ursula von der Leyen wants the European Union to quicken the halt of Russian gas and oil imports.
• The Israeli military has intensified its use of booby-trapped armoured vehicles to demolish residential neighbourhoods in Gaza City and is pressing ahead with a brutal offensive that has drawn widespread international condemnation. The EU is considering imposing tariffs on Israel and sanctioning extremist ministers in the government to pressure Israel to end the war in Gaza, which has now dragged on for 23 months.
• Traders now look forward to Thursday's US economic docket – featuring the release of the usual Weekly Initial Jobless Claims and the Philly Fed Manufacturing Index – for some impetus later during the North American session. Apart from this, the Bank of England policy update could infuse some volatility and influence the XAU/USD pair ahead of the crucial Bank of Japan monetary policy decision on Friday.

Gold approaches $3,645 pivotal support amid still overbought RSI on the daily chart

The daily Relative Strength Index (RSI) remains in the overbought territory and might further prompt profit-taking around the Gold. That said, the overnight bounce from the vicinity of a bullish flag pattern resistance breakpoint, now turned support, near the $3,645 region, warrants caution for the XAU/USD bears. Hence, it will be prudent to wait for some follow-through selling below the said area before positioning for further losses towards the $3,610-3,600 area.

On the flip side, the $3,678-3,680 region could act as an immediate hurdle ahead of the $3,700-3,707 zone, or the record high set on Wednesday. A sustained strength beyond the latter will be seen as a fresh trigger for bullish traders and should allow the Gold price to build on the recent breakout momentum and prolong a well-established uptrend witnessed over the past month or so.