- Gold price dips to $2,150 as investors turn cautious ahead of Fed’s interest rate decision.
- The US Dollar advances on hopes that the Fed could delay rate-cut plans.
- 10-year US yields fall moderately but hold strength on lower expectations for the Fed reducing interest rates in June.
In Tuesday’s European session, the price of Gold (XAU/USD) declines to $2,150 as the robust US Dollar exerts significant pressure on the precious metal. Gold’s attractiveness is dampened amidst uncertainty preceding the Federal Reserve’s monetary policy decision and the release of the quarterly dot plot on Wednesday.
Anticipation surrounds the Fed’s widely expected decision to maintain interest rates within the 5.25%-5.50% range for the fifth consecutive time. However, the market’s uncertainty regarding projections for rate cuts keeps Gold prices in suspense. Investors are dialing back expectations that the Fed might initiate interest rate reductions as early as June, further weighing on Gold.
Meanwhile, although 10-year US Treasury yields experience a slight decline to 4.32%, they remain generally robust. There’s optimism that the expected Fed rate cut, initially anticipated in June, might be postponed. This optimism is partly fueled by concerns among investors regarding higher-than-anticipated consumer and producer inflation data, which cast doubt on the likelihood of a policy shift occurring in June or being delayed further.
Daily digest market movers: Gold price drops sharply while US Dollar moves higher
- Gold prices experience a sharp decline, reaching the critical support level of $2,150, as investors adopt a risk-averse stance towards bullion ahead of the Federal Reserve’s interest rate decision scheduled for Wednesday.
- According to the CME FedWatch tool, the consensus is that the Fed will maintain interest rates at their current level following the conclusion of the two-day meeting. Market participants eagerly anticipate the release of the quarterly dot plot, which illustrates projections for interest rates by Chair Jerome Powell and other officials. Any adjustments in rate-cut projections for the year ahead, as indicated by the dot plot, could significantly impact the price of Gold.
- In December, the dot plot suggested that Fed officials were anticipating three rate cuts in 2024. Should the Fed revise down its rate-cut projections, Gold prices may face notable downward pressure. Presently, the CME FedWatch tool indicates a 60% likelihood of at least three rate cuts by 2024, slightly lower than the previous estimation of around 80% before the release of recent consumer and producer inflation data for February.
- In addition to the dot plot, the Fed will unveil economic projections for inflation and economic growth. A positive economic outlook would bolster the attractiveness of the US Dollar, given the United States’ robust performance in consumer spending and the labor market compared to other Group of Seven (G-7) economies.
- Amidst an improvement in safe-haven demand, the US Dollar Index (DXY), which measures the US Dollar against six major currencies, climbs to 104.00.
Technical Analysis: Gold price consolidates between $2,145-$2,165
Gold prices are under pressure as caution prevails ahead of the Federal Reserve’s interest rate decision. Trading within a narrow range between $2,145 and $2,165, the precious metal appears to be consolidating, with expectations of a breakout following the conclusion of the Fed’s policy meeting.
There’s a possibility that Gold may continue its downward trajectory towards the 20-day Exponential Moving Average (EMA) at $2,097. Following a significant deviation, assets often experience mean-reversion moves, leading to either a price or time correction.
Key support levels include the December 4 high near $2,145 and the December 28 high at $2,088.
Although the 14-Relative Strength Index (RSI) has retreated from its peak around 84.50, upward momentum persists.
