Gold Price Forecast: XAU/USD plummets below $1,770 as solid US Services PMI fuels hawkish Fed bets
|- Gold price has shifted its business below $1,770.00 as US Dollar Index sensed bumper demand on soured market sentiment.
- The tight labor market and solid United States service sector have triggered signs of a rebound in inflation.
- Federal Reserve might decelerate the interest rate hike pace but will escalate guidance on interest rate peak.
- Gold price is declining towards the lower portion of the Rising Channel chart pattern around $1,760.00.
Gold price (XAU/USD) has shifted its auction profile below the critical support of $1,770.0 in the early Asian session. The precious metal has been dragged below the cushion of $1,770.0 after surrendering the $1,780.00 support on Monday. Failing to climb above the ultimate resistance of $1,810.00 brought significant selling pressure on Gold price.
Soured market mood after the release of the stronger-than-projected US ISM Services PMI data triggered a sell-off in the risk-perceived currencies. Gold price faced immense pressure as upbeat service demand in the United States economy cemented expectations of a rebound in inflation. The risk aversion theme improved safe-haven’s appeal vigorously. The US Dollar Index (DXY) drove to 105.40 after registering a fresh five-month low at 104.10.
The risk aversion theme underpinned by the solid US service sector brought a stellar recovery in the returns from US Treasury bonds. The 10-YEAR us Treasury yields rebounded to near 3.59% after days of ignorance by the market participants.
Solid US service sector refreshes higher inflation expectations fears
Last week, upbeat US Nonfarm Payrolls (NFP) data cleared that labor demand is stellar led by strong demand from households. However, the market ignored the surprise rise in employment data and supported Gold price further. But now, the tight labor market in the United States economy has been followed by robust demand for the service sector. It is worth noting that a tight labor market and firmer service demand are catalysts that de-anchor short-term inflation expectations and carry the potential of ruining the recent drawdown in the October inflation report.
The US Services PMI has accelerated to 56.5, higher than the projections of 53.1 and the prior release of 54.4. Higher services PMI eventually demands more labor to augment the operations, which could incentivize firms to continue escalating prices for end use ahead.
Robust demand drives Federal Reserve’s bigger rate hike fears
Federal Reserve (Fed) chair Jerome Powell is putting his blood and sweat into triggering a slowdown in the United States economy to phase out extra inflation apart from the targeted one. The Federal Reserve has already announced four consecutive 75 basis points (bps) rate hikes to achieve price stability as early as possible. This time, the Federal Reserve policymakers were planning to decelerate the interest rate hike pace as their agenda is to trim inflation without crashing the economy.
No doubt, additional requirements for labor to augment overall robust demand will delight the Federal Reserve in hiking interest rates but rates have reached sufficiently higher to curtail inflation. Therefore, the novel robust demand has created havoc for the Federal Reserve policymakers.
Expectations for a higher interest rate peak by the Federal Reserve soared
The minutes from Federal Open Market Committee (FOMC) indicated that Federal Reserve policymakers favored a slowdown in the current pace adopted for an interest rate hike from December monetary policy meeting. The reasoning behind the small rate hike was to reduce financial risks and to observe the progress made from efforts by Federal Reserve in bringing price stability. A fresh increment in overall demand has renewed fears of hawkish Federal Reserve bets but various policymakers still favor a higher interest rate peak rather than calling a recession by passing a bigger rate hike judgment.
Chicago Fed President Charles Evans said on Friday, "We are probably going to have a slightly higher peak to Fed policy rate even as we slow pace of rate hikes," as reported by Reuters.
Gold price technical outlook
Gold price is declining towards the lower portion of the Rising Channel chart pattern plotted on an hourly scale. A bear cross, represented by the 20-and 50-period Exponential Moving Averages (EMAs) at $1,791.25, adds to the downside filters.
Meanwhile, the Relative Strength Index (RSI) (14) has shifted into the bearish range of 20.00-40.00, which indicates more weakness ahead.
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