Gold selling bias remains unabated amid trade optimism, reduced Fed rate cut bets
- Gold price continues to lose ground on Thursday and is pressured by a combination of factors.
- The US-China trade optimism undermines the safe-haven bullion amid rising US bond yields.
- Traders now look to the US PPI and Fed Chair Jerome Powell’s speech for a fresh impetus.
retracement level of the strong move up in April could be seen as a fresh trigger for bearish traders. Moreover, oscillators on the daily chart have just started gaining negative traction, suggesting that the Gold price could extend the fall further towards the $3,135-3,133 support. Some follow-through selling has the potential to drag the XAU/USD pair further towards the $3,100 mark, which, if broken, might expose the next relevant support near the $3,060 region.
On the flip side, attempted recovery above the $3,168-3,170 region (61.8% Fibo. level) might now confront stiff resistance ahead of the $3,200 mark, or the Asian session peak. Any further move up might now be seen as a selling opportunity and runs the risk of fizzling out rather quickly near the $3,230 area, or the 50% retracement level. The latter should act as a pivotal point, above which a fresh bout of short-covering move could lift the Gold price to the $3,265 intermediate hurdle en route to the $3,300 round figure (38.2% Fibo. level).
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.