- Gold prices fell for the seventh consecutive day on Tuesday, reaching a near seven-month low.
- The Fed’s hawkish stance, higher US bond rates, and a stronger USD all weigh on the XAU/USD.
- The US Dollar begins a positive consolidation period, which helps the XAU/USD.
The gold price (XAU/USD) has been drifting lower over the last two weeks or so, following the Federal Reserve’s (Fed) statement that sticky inflation would likely warrant at least one more rate hike in 2023. Furthermore, numerous Fed members reinforced the case for keeping rates low for longer in order to achieve the 2% inflation target.
— XAU/USD (Gold) Traders (@Qareemullah4x) October 3, 2023
In addition, the incoming strong macro data from the United States (US) boosts the Fed’s prospects for additional policy tightening. This, in turn, keeps US Treasury bond yields up, pushing the US Dollar (USD) to its highest level since November 2022 and driving flows away from the non-yielding yellow metal.
The downward trend continues on Tuesday, with the gold price falling to its lowest level since March 9 during the Asian session. However, a little softer tone surrounding US Treasury bond yields prevents USD bulls from putting new wagers, allowing the precious metal to find some support near the $1,815 mark.
TECHNICAL OUTLOOK #XAUUSD
Support – 1814/1800
Resistance – 1830/1842
— Alana (@s7713473) October 3, 2023
The XAU/USD recovers a significant portion of its intraday losses, despite a lack of follow-through in the aftermath of aggressive Fed predictions and the underlying strong bullish mood around the USD. This implies that the commodity’s path of least resistance is to the downside.
Gold price registers its longest losing streak since August 2022 in the wake of rising bets for more interest rate hikes by the Federal Reserve.
Fed policymakers maintain that monetary policy must remain restrictive for some time in order to return inflation to the 2% target.
— The 1% 🇦🇪 (@RB_Tradingltd) October 3, 2023
Fed Governor Michelle Bowman is willing to support raising rates further if the incoming data indicates that progress on inflation has stalled or is too slow.
Fed Vice Chair Michael Barr said that the important question at this point is how long to hold rates at a sufficiently restrictive level to achieve the goals.
Cleveland Fed President Loretta Mester likewise stated that inflation risks are weighted to the upside and that higher rates are required to ensure that the disinflationary trend continues.
The US ISM Manufacturing PMI improved to 49.0 in September, marking the highest figure since November 2022 and the third consecutive month of gain.
Furthermore, the increase in consumer expenditure, along with rising gasoline costs, signals to higher prices in the future and strengthens the probability of further policy tightening.
US #Treasury #yield at 16-year peak: Sell bonds, buy stocks?#Bond prices drop as yield surges on #inflation and growth hopes. #Stocks may gain from, but watch out for risks.$spx $spy $qqq #fomc #stockmarket #optiontrading #optionstrading pic.twitter.com/OaXBRLZgQn
— nomny (@nomny_) October 3, 2023
Markets now anticipate another 25 basis point (bps) rate hike this year, pushing the yield on the benchmark 10-year US government bond to a 16-year high.
The daily chart of the Relative Strength Index (RSI) shows very oversold circumstances, which was viewed as a crucial element that encouraged some intraday short-covering around the Gold price. Meanwhile, the lack of follow-through buying signals that the recent slump may still be far from over.
As a result, any following rally may be viewed as a selling opportunity and may be halted near the $1,830-1,832 resistance zone. A sustained advance above $1,850, on the other hand, might spark a short-covering rally, lifting the yellow metal to the $1,858-1,860 strong barrier. On the other hand, the daily swing low near $1,815 may protect the immediate downside ahead of the $1,800 round-figure mark. Some additional selling will reveal the next key support near $1,770-1,760.
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