Gold price remains depressed on the back of higher interest rate outlook – Crypto News – Crypto News
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XAU/USD bulls reach a critical milestone on daily chart ahead of Jackson Hole XAU/USD bulls reach a critical milestone on daily chart ahead of Jackson Hole

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Gold price remains depressed on the back of higher interest rate outlook – Crypto News

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  • Gold price drops to over a one-week low and seems vulnerable to extending its descending trend.
  • The Fed’s hawkish outlook continues to push the US bond yields higher and exerts pressure on Gold price.
  • The US Dollar hits a fresh YTD peak and contributes to driving flows away from the XAU/USD.

Gold price remains under some selling pressure for the second successive day on Tuesday – also marking the fifth day of a negative move in the previous six – and drops to a one-and-half-week low during the Asian session. The XAU/USD currently trades just below the $1,915 level, down over 0.10% for the day, and seems vulnerable to weaken further in the wake of growing acceptance that the Federal Reserve (Fed) will keep interest rates higher for longer. In fact, the Fed warned last week that still-sticky inflation in the United States (US) was likely to attract at least one more interest rate hike by the end of this year. Moreover, a majority of Fed policymakers now see only two rate cuts in 2024 as compared to four projected previously.

The US Dollar (USD), meanwhile, hit a 10-month high on Monday on the back of a further rise in the US Treasury bond yields and further undermines the Gold price. The incoming resilient US macro data and hawkish comments by influential Fed officials suggest the US central bank will continue tightening its monetary policy. This, in turn, leads to an extended selloff in the US fixed-income market, pushing the yield on the rate-sensitive two-year US government bond to a 17-year top. Moreover, the benchmark 10-year US Treasury note climbs beyond the 4.50% threshold for the first time since 2006, which continues to underpin the USD and validates the negative outlook for the non-yielding yellow metal. That said, the possibility of a US government shutdown could limit losses.

Daily Digest Market Movers: Gold price seems vulnerable amid hawkish Fed expectations

  • Gold price slides to over a one-week low in the wake of rising bets for further policy tightening by the Fed.
  • Comments by influential FOMC members back the case for one more 25 basis points (bps) lift-off in 2023.
  • The US economic resilience should allow the Fed to stick to its hawkish stance and continue raising rates.
  • The benchmark 10-year US Treasury yield touches a fresh 16-year top and the US Dollar hits a 10-month top.
  • Surging bond yields and a stronger USD support prospects for a further depreciating move for the yellow metal.
  • Concerns about a possible US government shutdown could lend support to the XAU/USD and help limit losses.

Technical Analysis: Gold price is likely to retest monthly low around the $1,900 mark

Gold price faced rejection near the very important 200-day Simple Moving Average (SMA) on Monday and the subsequent downfall favours bearish traders. Moreover, oscillators on the daily chart have just started gaining negative traction and suggest that the path of least resistance for the XAU/USD is to the downside. Hence, some follow-through weakness back towards retesting the monthly swing low, around the $1,900 round figure, looks like a distinct possibility. Some follow-through selling will be seen as a fresh trigger for bearish traders and pave the way for a further near-term depreciating move.
 

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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