XAU/USD Outlook: Gold Gains as Fed Policy Week Begins Amid Inflation Concerns

Gold Price Movement at the Start of Fed Policy Week

As of October 26, 2026, gold (XAU/USD) found buying interest below the $4,000 mark during Asian trading hours. The precious metal began the Federal Reserve’s monetary policy week on a positive note but remained vulnerable, trading close to a three-month low near $3,975. Market participants are closely watching the Fed’s upcoming policy announcement scheduled for Wednesday, which is expected to be a key driver for gold prices.

The CME FedWatch tool indicates a high probability that the Fed will maintain interest rates in the 3.75%-4.00% range. However, recent comments from Fed officials suggest that inflationary pressures are persistent, and additional rate hikes may be necessary to control them. This hawkish stance has contributed to cautious sentiment around gold, which is sensitive to changes in real interest rates and monetary policy expectations.

Fed’s Hawkish Signals and Inflation Outlook

Fed official Hammack delivered remarks characterized as moderately hawkish, with a 7.2/10 score on the FXS Speechtracker—slightly below the historical average of 7.6/10 but still signaling concern about ongoing price pressures. Hammack highlighted challenges faced by lower-income Americans due to inflation and noted anecdotal evidence of rising input costs. He also warned about the risk of an entrenched “inflation mentality,” which could necessitate more aggressive policy tightening if inflation expectations rise further.

The FXS Fed Sentiment Index declined marginally by 0.25 points to 127.92 but remains well above the neutral threshold of 100, indicating that the overall Fed tone continues to lean hawkish. This environment suggests that the Fed is likely to maintain a restrictive monetary policy stance for the foreseeable future, which could weigh on gold prices given their sensitivity to interest rate expectations.

Additional Economic and Market Factors

Beyond the Fed’s policy decision, several other events are notable this week. Preliminary Q3 Gross Domestic Product (GDP) data, the Personal Consumption Expenditure (PCE) Price Index, and earnings reports from major companies such as Amazon, Alphabet, and Microsoft may influence market sentiment and risk appetite, indirectly affecting gold.

Strategists at OCBC observed that gold experienced renewed selling pressure despite a decline in US Treasury yields. They attributed this to rising Brent crude oil prices amid Middle East supply concerns, which heightened inflation worries and reinforced expectations that the Fed may keep rates restrictive for longer. This dynamic has contributed to downward pressure on gold, even as bond yields fell.

Trading Scenarios

• If the Fed maintains interest rates steady but signals a “higher-for-longer” policy stance with hawkish guidance on inflation risks, then gold prices may face continued pressure due to expectations of sustained restrictive monetary policy.
• If inflation data or corporate earnings reports indicate a slowdown in price pressures or economic growth, then gold could gain support as market participants reassess the likelihood of future rate hikes, potentially boosting demand for the precious metal as a hedge.

FXVNPro Market Perspective

Gold prices are influenced by the interplay between inflation expectations, real interest rates, and monetary policy signals from the Federal Reserve. A hawkish Fed stance tends to increase real yields, which can reduce gold’s appeal as a non-yielding asset. Conversely, signs of economic slowdown or easing inflation could lower real rates and support gold prices.

Additionally, geopolitical factors such as oil supply disruptions can affect inflation expectations and risk sentiment, indirectly impacting gold. Market participants should monitor Fed communications, inflation data, and global risk developments to understand potential transmission mechanisms affecting XAU/USD.

What Traders Should Watch

• The Federal Reserve’s policy announcement and accompanying guidance on interest rates and inflation.
• Preliminary Q3 GDP and PCE Price Index releases for indications of economic growth and inflation trends.
• Earnings reports from major corporations that may influence market risk sentiment.
• Developments in global energy markets, particularly Brent crude oil prices, which can affect inflation expectations.

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