Gold consolidates below record highs as Fed caution and US Dollar strength weigh

• Gold pauses its record-breaking run after setting a fresh all-time high at $3,791.
• Fed's cautious stance and a firmer US Dollar cap upside, while geopolitical tension and rate-cut expectations cushion downside.
• Market focus shifts to upcoming US data and Fed commentary, with PCE inflation on Friday in the spotlight.

Gold (XAU/USD) is treading water on Wednesday, pausing its record-breaking run after peaking at $3,791 on the previous day. At the time of writing, XAU/USD is trading near $3,766 after briefly dipping toward $3,750 earlier in the Asian session, as traders weigh the Federal Reserve's (Fed) cautious stance on the path of monetary policy easing.

A rebound in the US Dollar (USD) and steady Treasury yields are capping upside attempts in Gold, though market bets remain firm on the prospect of additional interest rate cuts before year-end following last week's 25-basis-point (bps) reduction. Persistent geopolitical tensions and the broader fundamental and technical outlook continue to cushion downside risks, keeping dip-buyers engaged even as momentum stalls near record territory.

Fed Chair Jerome Powell, speaking in Washington on Tuesday, stuck to his familiar script, stressing that monetary policy remains "data-dependent" and that "there is no preset path" for future interest rate decisions. He acknowledged that the balance of risks has shifted, with downside threats to employment rising, but cautioned that easing too aggressively could leave "the inflation job unfinished."

Looking ahead, the Fed's dual mandate presents a delicate balancing act, though the tilt is increasingly toward safeguarding the labor market. Progress toward the 2% inflation goal appears to be stalling, but upside risks to prices are not materializing yet. With policy still firmly in restrictive territory, keeping rates elevated for too long risks inflicting unnecessary damage on employment, suggesting the Fed's bias should lean dovish even as it moves cautiously.

Market movers: Fed caution lifts Dollar, US government shutdown fears grow

• Fed commentary on Tuesday offered mixed signals beyond Powell's remarks. Vice Chair Michelle Bowman struck a dovish tone, warning the Fed risks being "behind the curve" on supporting jobs if it does not cut more decisively. Chicago Fed President Austan Goolsbee said there is "room to cut rates" if inflation continues to ease, while Atlanta Fed President Raphael Bostic cautioned that inflation risks remain present in the economy, citing persistent cost pressure in business plans.
• The US Dollar Index (DXY), which tracks the value of the Greenback against a basket of six major currencies, edges higher on Wednesday, snapping a two-day losing streak and rising nearly 0.50% to trade around 97.70.
• Geopolitical tensions remain elevated. Russian MiG-31 aircraft entered Estonian airspace on Tuesday, prompting NATO to deploy fighter jets and Tallinn to call for Article 4 consultations. Additionally, Ukraine stepped up drone strikes on Russian energy infrastructure.
• US President Donald Trump, addressing the United Nations General Assembly in New York on Tuesday, said Ukraine "can win back all the territory" lost to Russia with support from NATO and Europe. He urged alliance members to "shoot down Russian aircraft" if they violated their airspace. Trump also criticized European nations for continuing to purchase Russian energy, calling it "embarrassing" that NATO countries were indirectly funding Moscow's war effort.
• The US faces a potential government shutdown from October 1 if Congress fails to pass new funding legislation. Lawmakers remain deadlocked after the Senate rejected a House-passed stopgap bill that excluded Democratic priorities such as healthcare subsidies, while President Trump on Tuesday canceled a planned meeting with Democratic leaders, accusing them of making "unserious and ridiculous demands."
• Wednesday's US economic calendar is light with only tier 2 data in the form of New Home Sales, while San Francisco Fed President Mary Daly is scheduled to speak later in the day. Focus then turns to Thursday's releases, including Weekly Initial Jobless Claims, the second estimate of US Q2 Annualized Gross Domestic Product (GDP), and Durable Goods Orders, ahead of Friday's core Personal Consumption Expenditures (PCE) Price Index.

Technical analysis: XAU/USD consolidates below record highs

XAU/USD marked a fresh all-time high at $3,791 before slipping into a consolidative phase, with buyers successfully defending the $3,750 level. While the broader bullish structure remains intact, momentum indicators are showing early signs of exhaustion, suggesting the market is digesting recent gains after an overextended rally.

On the downside, $3,750 is the immediate pivot, followed by the $3,700 psychological mark. A break below $3,700 would risk a change in market structure and open the door to a deeper corrective pullback. For now, however, the metal continues to trade comfortably above both short and medium-term moving averages, underscoring the strength of the prevailing uptrend.

On the upside, the all-time high at $3,791 and the psychological $3,800 mark stand as key resistance levels. A sustained break higher would reaffirm the uptrend, while a failure to build momentum would leave Gold vulnerable to a period of consolidation before the next directional move.