A spectacular retail sales report made investors trim their bets on a rate cut by the Fed and supported USD demand. As a result, the dollar index rose to nearly two-week highs late last week but switched to a subdued trading today.
After a break above $1,1350, the precious metal attracted some profit-taking and may have formed a local top as the Fed’s tone may turn out not as dovish as expected. The two-day meeting, which concludes on Wednesday, will set the direction for gold for the second half of the week.
Should the FOMC fail to provide support to the yellow metal, the prices could extend the retreat and get back below the $1,325 area. As long as the bullion remains above the 100-DMA around $1,300, the downside risks are limited.