Gold Price Forecast: XAU/USD seems poised to break below $1,600 amid Fed rate hike jitters
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UNLOCK OFFER- Gold gains positive traction on Tuesday and snaps a two-day losing streak to over a two-year low.
- The USD eases a bit from a two-decade high and offers support to the dollar-denominated metal.
- Bets for more aggressive rate hikes by the Fed and other major central banks could limit the upside.
Gold edges higher during the Asian session on Tuesday and recovers a part of the previous day's slide to the lowest level since April 2020. The US dollar eases from a new two-decade high hit on Monday and is a crucial factor offering some support to the dollar-denominated commodity. The upside potential, however, seems limited amid the prospects for a more aggressive policy tightening by global central banks, including the Federal Reserve. It is worth recalling that the US central bank last week delivered a third consecutive supersized 75 bps rate hike and signalled more sizable increases at its upcoming meetings to tame surging inflation.
A duo of FOMC members reiterated Monday that the priority remains controlling domestic inflation. Cleveland Fed President Loretta Mester noted that further increases in the policy rate would be needed to put inflation on a sustained downward trajectory to the 2% target. Adding to this, Atlanta Fed president Raphael Bostic said the more important thing is to get inflation under control. The more hawkish outlook lifted the yield on the rate-sensitive two-year US government bond to over a 15-year peak and the benchmark 10-year Treasury note to the highest level since April 2010. This should continue to act as a tailwind for the greenback and cap the upside for the non-yielding yellow metal.
Apart from this, the risk-on impulse, as depicted by a generally upbeat tone around the equity markets, warrants caution before placing bullish bets around the safe-haven gold. Market participants now look forward to the US economic docket - featuring Durable Goods Orders, the Conference Board's Consumer Confidence Index, New Home Sales and Richmond Manufacturing Index. This, along with the US bond yields, will influence the USD price dynamics and allow traders to grab short-term opportunities around the XAU/USD. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the metal is to the downside. The attempted recovery move runs the risk of fizzling out rather quickly.
Technical Outlook
From a technical perspective, any subsequent move up is more likely to confront resistance near a one-week-old trading range support breakpoint, around the $1.654-$1,656 region. Sustained strength might trigger a short-covering move towards the $1,675-$1.676 supply zone. Some follow-through buying will negate any near-term negative bias and pave the way for additional gains, allowing bulls to aim back to reclaim the $1.700 round-figure mark.
On the flip side, the YTD low, around the $1,620 area, now seems to protect the immediate downside ahead of the $1,620-$1.590 region. Failure to defend the said levels will be seen as a fresh trigger for bearish traders and drag gold towards the next relevant support near the $1,567-$1,565 zone. The downward trajectory could extend towards the $1,530-$1,528 region, below which the XAU/USD might turn vulnerable to challenge the $1,500 psychological mark.
- Gold gains positive traction on Tuesday and snaps a two-day losing streak to over a two-year low.
- The USD eases a bit from a two-decade high and offers support to the dollar-denominated metal.
- Bets for more aggressive rate hikes by the Fed and other major central banks could limit the upside.
Gold edges higher during the Asian session on Tuesday and recovers a part of the previous day's slide to the lowest level since April 2020. The US dollar eases from a new two-decade high hit on Monday and is a crucial factor offering some support to the dollar-denominated commodity. The upside potential, however, seems limited amid the prospects for a more aggressive policy tightening by global central banks, including the Federal Reserve. It is worth recalling that the US central bank last week delivered a third consecutive supersized 75 bps rate hike and signalled more sizable increases at its upcoming meetings to tame surging inflation.
A duo of FOMC members reiterated Monday that the priority remains controlling domestic inflation. Cleveland Fed President Loretta Mester noted that further increases in the policy rate would be needed to put inflation on a sustained downward trajectory to the 2% target. Adding to this, Atlanta Fed president Raphael Bostic said the more important thing is to get inflation under control. The more hawkish outlook lifted the yield on the rate-sensitive two-year US government bond to over a 15-year peak and the benchmark 10-year Treasury note to the highest level since April 2010. This should continue to act as a tailwind for the greenback and cap the upside for the non-yielding yellow metal.
Apart from this, the risk-on impulse, as depicted by a generally upbeat tone around the equity markets, warrants caution before placing bullish bets around the safe-haven gold. Market participants now look forward to the US economic docket - featuring Durable Goods Orders, the Conference Board's Consumer Confidence Index, New Home Sales and Richmond Manufacturing Index. This, along with the US bond yields, will influence the USD price dynamics and allow traders to grab short-term opportunities around the XAU/USD. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the metal is to the downside. The attempted recovery move runs the risk of fizzling out rather quickly.
Technical Outlook
From a technical perspective, any subsequent move up is more likely to confront resistance near a one-week-old trading range support breakpoint, around the $1.654-$1,656 region. Sustained strength might trigger a short-covering move towards the $1,675-$1.676 supply zone. Some follow-through buying will negate any near-term negative bias and pave the way for additional gains, allowing bulls to aim back to reclaim the $1.700 round-figure mark.
On the flip side, the YTD low, around the $1,620 area, now seems to protect the immediate downside ahead of the $1,620-$1.590 region. Failure to defend the said levels will be seen as a fresh trigger for bearish traders and drag gold towards the next relevant support near the $1,567-$1,565 zone. The downward trajectory could extend towards the $1,530-$1,528 region, below which the XAU/USD might turn vulnerable to challenge the $1,500 psychological mark.
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