Gold price languishes near one-and-half-week low on hawkish Fed expectations

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• Gold price drops to over a one-week low and seems vulnerable to extending its descending trend.
• The Fed’s hawkish outlook pushes the US bond yields higher and exerts pressure on Gold price.
• The US Dollar sits near the YTD peak and is seen as another factor undermining the XAU/USD.

Gold price prolongs its descending trend witnessed over the past week or so and weakens further below the $1,915 level, hitting over a one-week low on Tuesday. The US Dollar (USD) stands tall near its highest level since December 2022 touched on Monday and continues to undermine the XAU/USD. This, along with the Federal Reserve’s (Fed) hawkish outlook supports prospects for a further depreciating move for the non-yielding yellow metal. In fact, the Fed warned last week that still-sticky inflation in the United States (US) was likely to attract at least one more interest rate hike by the end of this year. Moreover, a majority of Fed policymakers now see only two rate cuts in 2024 as compared to four projected previously.

That said, the risk-off impulse – as depicted by a generally weaker tone around the equity markets – lends some support to the safe-haven Gold price. Growing acceptance that the Fed will keep rates higher for longer revives fears about economic headwinds stemming from rapidly rising borrowing costs. This, along with persistent worries about a housing market crisis in China, tempers investors’ appetite for riskier assets and lends support to the XAU/USD. Any meaningful recovery for the commodity, however, seems elusive in the wake of growing acceptance that the Federal Reserve (Fed) will keep interest rates higher for longer.

The incoming resilient US macro data and hawkish comments by influential Fed officials suggest the US central bank will continue tightening its monetary policy. Moreover, Minneapolis Fed President Neel Kashkari said that the US rates probably have to go a little bit higher and be held there for longer, to cool things off. This, in turn, leads to an extended selloff in the US fixed-income market, pushing the yield on the rate-sensitive two-year US government bond to a 17-year top. Moreover, the benchmark 10-year US Treasury note climbs beyond the 4.50% threshold for the first time since 2006, which continues to underpin the USD and validates the negative outlook for the non-yielding Gold price.

Daily Digest Market Movers: Gold price seems vulnerable amid hawkish Fed expectations

• Gold price slides to over a one-week low in the wake of rising bets for further policy tightening by the Fed.
• Comments by influential FOMC members back the case for one more 25 basis points (bps) lift-off in 2023.
• The US economic resilience should allow the Fed to stick to its hawkish stance and continue raising rates.
• The benchmark 10-year US Treasury yield touches a fresh 16-year top and the US Dollar hits a 10-month top.
• Surging bond yields and a stronger USD support prospects for a further depreciating move for the yellow metal.
• The risk-off impulse could lend some support to the safe-haven XAU/USD and help limit any further losses.

Technical Analysis: Gold price is likely to retest monthly low around $1,900 mark

Gold price faced rejection near the very important 200-day Simple Moving Average (SMA) on Monday and the subsequent downfall favours bearish traders. Moreover, oscillators on the daily chart have just started gaining negative traction and suggest that the path of least resistance for the XAU/USD is to the downside. Hence, some follow-through weakness back towards retesting the monthly swing low, around the $1,900 round figure, looks like a distinct possibility. Some follow-through selling will be seen as a fresh trigger for bearish traders and pave the way for a further near-term depreciating move.