Market Data 
- Gold price struggles to gain any meaningful traction and hangs near a one-week low.
- Hawkish Fed expectations underpin the USD and act as a headwind for the metal.
- Traders seem reluctant to place aggressive bets ahead of the crucial FOMC decision.
Gold price (XAU/USD) extends its sideways consolidative price move through the early European session on Wednesday and remains well within the striking distance of over a one-week low touched on Monday. Investors seem convinced that the Federal Reserve (Fed) will stick to its higher-for-longer interest rates narrative in the wake of still-sticky inflation. The hawkish outlook, meanwhile, keeps the US Treasury bond yields elevated, which, in turn, is seen acting as a tailwind for the US Dollar (USD) and capping the upside for the non-yielding yellow metal.
Furthermore, the prevalent risk-on environment turns out to be another factor denting demand for the safe-haven Gold price. The downside, however, remains cushioned in the wake of geopolitical risks stemming from the protracted Russia-Ukraine war and conflicts in the Middle East. Traders also seem reluctant and prefer to wait for more cues about the Fed’s rate-cut path before placing directional bets. This, in turn, warrants some caution ahead of the crucial FOMC monetary policy decision, scheduled to be announced later during the US session.
Daily Digest Market Movers: Gold price awaits Fed rate-cut cues before next leg of a directional move
- The stronger US inflation figures released last week forced investors to trim their bets for an interest rate cut in June and remain supportive of elevated US Treasury bond yields, underpinning the US Dollar and capping the Gold price.
- The current market pricing indicates a less than 50% likelihood that the Fed will deliver its first interest-rate cut in June, and the central bank’s 2024 median interest-rate projection could shift to two cuts from three cuts previously.
- The yield on the benchmark 10-year US government bond climbed to its highest level since November 30, pushing the USD to a two-week high and contributing to keeping a lid on any meaningful upside for the non-yielding yellow metal.
- Wall Street closed Tuesday’s trading session on a high note Tuesday, with the S&P 500 rising to a fresh record high and holding back bulls from placing bets around the safe-haven commodity despite the ongoing geopolitical tensions.
- Traders, however, opt to wait for the outcome of the highly anticipated two-day FOMC monetary policy meeting for cues about the future rate-cut path before positioning for the next leg of a directional move for the XAU/USD.
- The US central bank is widely expected to keep rates at their historic highs, though the market focus will be on the “dot plot” for clues about the number and timing of rate cuts this year, which will influence the precious metal.
- Adding to this, Fed Chair Jerome Powell’s comments during the post-meeting press conference might infuse some volatility in the financial markets and provide some meaningful impetus to the Gold price.
Technical Analysis: Gold price bulls await breakout through descending trend-channel resistance
Against the backdrop of the recent blowout rally to the record peak, the pullback witnessed over the past week or so along a downward-sloping channel, constitutes the formation of a bullish flag pattern. Furthermore, technical indicators on the daily chart have eased from the overbought territory and are still holding comfortably in the positive zone. This, in turn, validates the constructive setup and suggests that the path of least resistance for the Gold price is to the upside.
That said, it will be prudent to wait for a sustained breakout through the descending channel before positioning for any further appreciating move. The Gold price might then accelerate the positive move to the $2,175-2,176 intermediate hurdle en route to the record peak, around the $2,195 area touched last week. Some follow-through buying beyond the $2,200 mark will set the stage for the resumption of the uptrend witnessed since the beginning of this month.
On the flip side, the $2,145-2,144 now seems to have emerged as an immediate strong support, which should act as a pivotal point for the Gold price. A convincing break below will expose the next relevant support near the $2,128-2,127 zone before the XAU/USD extends the corrective decline further towards the $2,100 round figure.
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.
