Gold Price Forecast: Bears moving in for the kill post hawkish Fed

Update, early Asia: 

Gold prices were volatile in the US session on the back of the China Evergrande risks fading over the horizon and the Federal Reserve turning more hawkish. Evergrande agreed to settle interest payments on a domestic bond on Wednesday. This has calmed contagion risks in the bond and stock markets. 

The Chinese central bank also injected cash into the banking system, temporarily soothing fears of imminent contagion from the debt-laden property developer. However, $300 billion in liabilities is owed to countless banks, lenders, retail investors and suppliers. This means any impact would be complex and uncertain. There has been no mention of its plans for another bond payment on Thursday and one next week. The situation remains fluid.

With all that being said, Fed's chairman, Jerome Powell went one step further when he answered questions in Wednesday's virtual press conference during the press conference following a meeting of the policy-setting Federal Open Market Committee. 

 He was of the opinion that the Chinese Evergrande problem is a Chinese economic risk, not a US one. 

''There is not a lot of direct US exposure but you would worry it would affect global financial conditions through confidence channels,'' Powell said. 

'I would not draw a parallel between Evergrande and US corporate sector,'' he added 

''The Evergrande situation seems very particular to China, which has very high debt for an emerging economy," Powell argued. 

Meanwhile, the US dollar was seen as a good pick up opportunity as the dust started to settle and markets came into line with a more hawkish tilt at the Fed. November has been marked as the most likely month for which tapering will begin. There is even a 50% chance that a rate hike might come sooner than expected in 2022. 

''Half of Fed policymakers see lift-off in fed funds rate from zero in 2022, vs. 7 of 18 in June forecast; all but one see liftoff by end-2023 (vs. 13 in June)."

End of update

The price of gold has been volatile on Wednesday following the Federal Reserve's interest rate decision that has just been released. 

XAU/USD has rallied to a fresh high of $1,786.87 in a 1% move between $1,769 and $1,787.87 so far. The FOMC statement gives rise to an imminent taper announcement. 

Key takeaways, first glance

Fed leaves interest rates unchanged.

The Fed says moderation in asset purchases "may soon be warranted".

If progress continues as expected, a taper may soon be warranted.

Dots suggest that Fed has signalled that it may start raising its benchmark interest rate sometime next year.

Hawkish changes on the statement:

The Fed funds futures raise chances of a Fed rate hike by Dec 2022 to more than 80% following this and earlier than it envisioned three months ago and a sign that it's concerned that high inflation pressures may persist.

The US dollar would be expected to find demand on this development. So far, however, the DXY is lower on the day by some 0.11%. 

The Evergrande risk that is abating is giving rise to a risk-on environment, hence risk assets remain supported despite the Fed's hawkish tone. 

All eyes on Fed Powell

Federal Reserve chairman's press conference. Jerome Powell will be answering questions likely related to the Evergrande risks and timings of tapering as well as inflation and economic outlooks. 

Expect further volatility.

Watch live, Fed's chair Powell

 

Gold technical analysis

Gold has in the throws of the Wycoff breakout and reaccumulation phase as pointed out in yesterday's analysis as follows:

''The price is playing out in a typical Wycoff post accumulation phase. The bulls broke out of the accumulation zone highs of  $1,767 and in a strong rally which would be expected to correct where it met a psychological $1,780 short-term target level. A subsequent correction would be expected to be followed by another bullish impulse towards $1,790 for the sessions ahead on Wednesday. ''

Live market 

Gold can continue higher into $1,790 resistance as targetted.