Yesterday, gold fell 2.2 percent and dropped below $4,300 per ounce after supply disruptions from the Middle East strengthened the odds of a series of Federal Reserve rate hikes this year. Benchmark crude futures exceeded $109 per barrel, intensifying inflation concerns ahead of this week's Fed decision. Treasury yields and the dollar index rose along with oil, and that became the main pressure on gold, since the metal yields no interest.

The expectation that expensive energy will seep into core inflation pushed the Fed toward its first rate hike in three years, and traders are already pricing in nearly a 90 percent probability of such a move this week. A rate hike benefits the dollar, which strengthens as yields rise, and hurts gold, whose demand falls when money is costly. The market has mostly priced in the hike risk, but if it is realized, gold will face additional pressure, whereas keeping rates unchanged — whether the Fed sounds hawkish or dovish — would lower real yields and revive concerns about policy credibility and currency debasement, which would favor gold.

Since early August, when gold bounced off a low near $4,000 per ounce, the metal has mostly traded around $4,400 as the market repeatedly revised Fed-policy expectations. That is why the current decline looks more like a correction within an uptrend than a trend break, especially since many investors still view gold as a traditional defensive asset. Even if rates are raised, gold should retain support in the medium term.

In my view, the key fork for gold on Wednesday is not the decision itself but the Fed's tone: the market has almost fully priced in a hike, so the metal will react not to the fact of a rate increase but to how hawkish or dovish the statement sounds about the path ahead. If the tone is at least moderately dovish, the gold sell-off could quickly reverse back toward $4,400, whereas a clearly hawkish stance risks pushing the metal to new local lows below $4,200.

As for the current technical picture, buyers need to take the nearest resistance at $4,304. That would allow a target of $4,372, above which a breakout will be difficult. The farthest target is the $4,424 area. In the event of a drop, bears will try to seize control of $4,249. If they succeed, a range breakout will deal a serious blow to bulls' positions and send gold toward the $4,186 low, with a prospect of extending to $4,124.