XAU/USD Fundamental Outlook
The price of gold has had a bad day, with prices tumbling down over 1.59%, roughly equivalent to $30. This decline comes as US bonds see an uptick due to an improvement in risk appetite, denting the demand for gold.
As a result, US commodities saw a moderate increase as traders waited for the FOMC decision. As of writing, the XAU/USD pair is changing hands at 1,948 after hitting a daily high of $1,985.
Investors’ fears have been easing in the last two days after the UBS takeover of the troubled Credit Suisse bank, while banks in the US continued with their efforts to help the First Republic Bank. The Fed will start the FOMC meeting with the market expecting the Fed to do a quarter-point hike as policymakers continue to tackle stubborn inflation figures.
The XAU/USD pair returned after most of its gains after hitting a YTD high on March 20, at the $2009.75 level. Since then, the metal has dipped 3.09%, with traders booking their returns before the meeting.
Fed Decision On Rate Hikes To Determine Gold’s Direction
According to the CME Fed Watch tool, money market futures predict an 83% chance of the Fed doing a 25bp rate hike. However, there is immense uncertainty around the matter. For example, Elon Musk, the tech billionaire, says that the Fed should reduce the lending rates by 50bp, with other notable figures supporting 25bp.
However, some experts also offer a different opinion and say that the Fed could pause the rate hikes to avoid a recession. The XAU/USD pair is also facing headwinds from rising treasury yields. Long-dated yields rose by nine basis points to hit 3.58%, while the Treasury Inflation-Protected Securities (TIPS) currently stand at 1.31% after a decline that saw the proxy hit 1.142% last week.
On the other hand, the DXY is trimming some of its losses after tumbling to a low of 103.00, a 0.03% decline. According to analysts, the long-term outlook is very important. For example, suppose the Fed expects rates to peak in 2023 alongside the possibility of a rate cut before the year ends.
In that case, market participants may respond to the comments as dovish, leading to bullish sentiment on gold. On the other hand, if the Fed takes the opposite direction and does a rate hike at the 0.25% level, which remains the most likely outcome, then the rate hike would be seen as a hawkish signal sending investors in the direction of safe-haven assets. However, according to analysts at Commerzbank, the Fed could indicate a pause in the future before the banking crisis worsens.
Technical Analysis of The XAU/USD Pair
Based on the daily chart, the XAU/USD pair shows a bullish gold trend. However, recent price action and technical indicators suggest that the pair may soon form an evening star candle pattern, which could lead to a drop shortly.
The pair faces fragile support levels, with the first support level being the high recorded on March 15, which has now turned into resistance at $1937. If the price drops below this level, we may see a gold return to its familiar territory around $1900. Further decline may lead to a test of the 20-day Exponential Moving Average at $1892, and a drop below this could result in testing the 50-day EMA at $1867.89.