Gold Price Forecast: XAU/USD’s post-Fed rebound remains capped below $1780

• Gold trims the post-Fed recovery gains in the Asian session.
• The Federal Reserve will begin reducing bond purchases by the middle of November.
• The Fed would reduce its QE by $15 billion.
• The US T-bond 10-year yield advances to 1.60%.

Update: Gold has stalled its recovery from the Fed-inflicted blow on Thursday, as the confluence of the 21 and 50-Daily Moving Averages at $1780 appears to be a tough nut to crack for the bulls. The upbeat market mood combined with the rebound in the US Treasury yields and the dollar check the gold’s recovery from three-week lows of $1759. Gold also cheers Fed Chair Jerome Powell’s patient stance on the interest rates hike after the bright metal retested the $1760 area on the central bank’s tapering announcement a day before. Looking ahead, the post-Fed recovery in gold price could regain momentum only a sustained move above the $1780 barrier, with little expected from the US weekly jobless claims data to offer any impetus to gold bulls.

XAU/USD advances as the Asian session begin, up 0.28%, trading at $1,774 at the time of writing. On Wednesday, the Federal Reserve decided to keep rates unchanged at the 0 to 0.25% range. Also, the bond taper process is a reality. The central bank said that it will reduce the pace of bond purchases by $15 billion a month, until the end of the stimulus, by the first half of 2022.

Gold reacted to the downside, dipped to $1,759, but found some buying pressure to settle at the end around $1,770. On its way south, the yellow-metal pushed through the 100-day moving average, which keeps USD bulls in control, as long as the price remains below the abovementioned.

Sumary of the Federal Reserve monetary policy statement

Putting this aside, Wednesday’s focus was on the Fed. In its monetary policy statement, the US central bank noted that higher inflation pressures are transitory (sticking to its stance) and added that supply and demand imbalances contributed to elevated prices. Despite the jump in inflation, the Fed sees an improvement in economic activity and observes progress in the labor market.

Concerning the bond purchasing program, the Fed said that they “will begin taper later this month with reductions in treasuries purchases by $10 bln, MBS by $5 bln.” It is worth noticing that the central bank left the door open for adjustments at the QE’s pace. They added that “comparable decreases in buying pace are likely reasonable each month, but we are willing to adapt if necessary.”

As portrayed by US equity stocks printing new all-time highs, market participants’ reaction seems tilted to a dovish taper announcement. However, the central bank left the door open for an accelerating pace in case that higher inflation remains stickier than expected. 

That said, at press time, the US 10-year bond yields advances two basis points, sitting at 1.60%, for the first time in the week. Also, the 2-year benchmark note rate, which gives clues about near-time interest rates, is flat at 0.48%.

Meanwhile, the US Dollar Index slides 0.25%, currently at 93.85, reinforcing the thesis that investors move towards riskier assets exchanging safe-haven currencies, like the greenback and the Japanese yen, as the abovementioned weakened on the release of the Fed’s monetary policy statement.

XAU/USD Price Forecast: Technical outlook

Daily chart

On Wednesday, XAU/USD price action seesawed in a $29 range, reaching a daily low at $1,759 before settling at current levels. The daily moving averages (DMA’s) remain above the spot price but with a flattish slope, depicting gold is in a sideways trend. Further, the yellow metal is approaching the abovementioned levels, signaling that the downward bias is fading. Nevertheless, a clear upside break above the 200-day moving average (DMA) at  $1,800 might keep gold bulls in charge.  In that outcome, the following resistance area would be the July 15 high at $1,834, followed by an empty road towards $1,900.

Conversely, if USD bulls like to remain in control, they need to hold prices below the 200-DMA. In that outcome, the first support area would be the November 3 low at $1,759. A breach of the latter would expose a rising upslope trendline that travels from the August 9 lows towards the September 29 low, around the $1,740-50 area.