Gold - Off 4-1/2 month lows, focus on treasury yields

• Gold has recovered from the 4-1/2 month low.
• Still, upside capped on caution ahead of the Fed rate decision.
• Currently, related markets - treasury yields offer no clues.

Gold's (XAU/USD) recovery from the 4-1/2 month low of $1243.80 appears to have run out of steam around $1250, seemingly due to caution ahead of the Wednesday's FOMC rate decision.

The Fed is widely seen raising rates by 25 basis points (bps) this Wednesday. It appears the investors have already priced-in the move as the 2-year treasury yield (which mimics short-term interest rate expectations) has rallied from 1.254 percent (Sep low) to 1.839 percent (last week). Meanwhile, the metal has dropped sharply from $1300 to $1243.80 over the last two weeks.  

Consequently, the yields may drop and the metal may regain bid tone on Wednesday, especially if the Fed dot plot shows downward revision of the interest rate forecasts.

Ahead of the Fed, the focus remains on the Treasury yields, which, as of writing it trading flatlined at 1.80 percent.

Gold Technical Levels

A break below $1246.89 (session low) would open doors for $1243.80 (Dec. 7 low) and $1236.71 (Jun. 26 low). A move above $1253.35 (resistance on 1-hour) would expose $1255.17 (5-day MA) and $1258 (1-hour 50-MA).