Market Data 
- Gold trades down more than 1% after hitting a high of $2,426.
- US Treasury yields rise following hotter-than-expected UK inflation data.
- Wall Street Journal reports central banks in emerging markets added 2,200 tons of Gold since Q3 2022, driven by Western sanctions on Russia.
- Fed minutes reveal willingness to tighten policy further if economic risks materialize.
Gold plunged during the North American session on Wednesday, breaching below the $2,400 barrier, as traders seem to have booked profits ahead of the release of the last Federal Reserve (Fed) Meeting Minutes. Data from the United States (US) showed the housing market continued to show weakness, while Fed officials remained home after a busy week’s start.
The XAU/USD trades at $2,392, losing more than 1% after reaching a high of $2,426. US Treasury bond yields are rising following a hotter-than-expected inflation report from the UK, sending US yields higher. US equities are mixed ahead of NVIDIA’s earnings report release, while the Greenback edges up.
In the meantime, an article by The Wall Street Journal mentioned that Gold rallied due to central bank buying. According to the World Gold Council, central banks in emerging markets added around 2,200 tons of the golden metal since Q3 2022.
The article mentioned that the trigger might be Western sanctions on Russia after its invasion of Ukraine.
Aside from this, US Existing Home Sales plunged in April from 4.22 million to 4.14 million, or a -1.9 % contraction. Despite that, NAR Chief Economist Lawrence Yun said, “Home prices reaching a record high for the month of April is very good news for homeowners.”
Recently, the Fed released its latest meeting minutes, which showed that “Various participants mentioned willingness to tighten policy further should risks to outlook materialize and make such action appropriate.”
Daily digest market movers: Gold price falls as US yields climbed following hawkish Fed Minutes
- Gold prices tumble sharply as US Treasury yields rise and Greenback advances. The US 10-year Treasury bond yield edges up 2 basis points to 4.434%, while the US Dollar Index (DXY), which tracks the Greenback’s performance against a basket of six other currencies, is up 0.19% at 104.82, a headwind for XAU/USD.
- The FOMC Minutes showed that Fed officials remained uncertain about the degree of policy restrictiveness. They added that “it would take longer than previously anticipated to gain greater confidence in inflation moving sustainably to 2%.”
- During the week, speeches by Fed officials laid the ground for the “hawkish tilt” of the FOMC’s Minutes, as most officials commented they would like to be certain that inflation is edging down and that they’re not in a rush to lower the fed funds rate.
- Data from the Chicago Board of Trade shows investors are expecting 31 basis points of Fed easing toward the end of the year.
Technical analysis: Gold price slides below $2,400 as bears target $2,330
Gold price’s uptrend remains in place, yet Wednesday’s pullback could pave the way to test lower prices. Momentum is shifting negatively as the Relative Strength Index (RS), despite standing bullish, is aiming downwards. With that said, buying pressure is waning as sellers step in.
That said, the XAU/USD’s first support would be the May 13 low at $2,332, followed by the May 8 low of $2,303. Once those levels are surpassed, the 50-day Simple Moving Average (SMA) at $2,284 will be up next.
On the other hand, if buyers push the Gold price above $2,400, look for a retest of year-to-date highs at $2,450.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
