Gold Price Analysis: XAU/USD eases back from multi-month highs above $1850 as Fed meeting looms

After breaking out to fresh two-month highs to the north of the $1850 level on Tuesday, spot gold (XAU/USD) prices have on Wednesday eased back to the mid-$1840s as gold bulls book some profit ahead of the Fed policy announcement. Gold has surprised some analysts recently given its resilience in recent days to an advancing US dollar (the DXY hit fresh multi-week highs on Tuesday). Analysts say the buck has been benefitting from a combination of hawkish Fed expectations ahead of Wednesday’s meeting where the bank is anticipated to greenlight multiple 2022 rate hikes (starting in March) and prompt quantitative tightening, as well as safe-haven demand.

Typically, hawkish Fed expectations plus a stronger dollar would be a bearish combination for spot gold but the precious metal has nonetheless maintained broadly positive momentum since its early 2022 dip below $1800. Technically speaking, the picture is bullish, with prices having found solid support at the resistance turned support $1830 area multiple times in recent sessions and in a pattern of posting consistently higher highs and higher lows. XAU/USD is above all of its major daily moving averages (21, 50 and 200) and all three pointing higher and conditions are still not nearly in “overbought” territory (according to the 14-day Relative Strength Index in the low 60s). That suggests the scope for longs to continue to build remains strong and bulls will still likely be targetting a test of Q4 2021 highs in the $1870s.

If there is a “sell the fact” reaction to Wednesday’s Fed meeting that sees the US dollar weaken amid profit-taking and/or any further weakness in US bond yields amid safe-haven demand, gold could continue pressing higher. The increasingly tense geopolitical situation in Eastern Europe between NATO/Ukraine/Russia has been cited by some as gold positive, not just because of generalised safe-haven demand, but also given any conflict would likely prove inflationary if it puts strong further upwards pressure on global energy prices. That may be bolstering gold as market participants seek inflation protection and is an important theme to watch.