- Gold remains down around a 15-day low after a 3-day downtrend.
- Market sentiment is turning positive again amid a rebound in global equities.
- Treasury yields tipped toward the mid-2019 high, S&P 500 futures differ from Wall Street’s bullish close in the slow Asian session.
- Fed Snapshot March: Gold Needs a Dovish Fed to Regain Ground
Update: Gold (XAU/USD) is hovering around Tuesday’s low at $1,907.13 as investors fret ahead of the announcement of the Federal Reserve’s (Fed) interest rate decision. Usually, continued price action near the low of the previous trading session denotes the accumulation of large offers and more weakness going forward. Although it is very clear that Fed Chairman Jerome Powell and his colleagues have no choice but to propose an interest rate hike to curb soaring inflation, the catalyst that interests investors is the extent of the hawkish stance to be taken by the Fed.
Meanwhile, 10-year US Treasury yields felt barricaded near 2.15% amid growing uncertainty over Fed monetary policy. The US Dollar Index (DXY) lagged returns and struggled to hold above 99.00. In addition, positive signals from Asian markets have tightened the appeal of safe havens.
Along with the Fed’s monetary policy announcement, US retail sales will also be released on Wednesday. A preliminary estimate at 0.4% indicates underperformance instead of the previous impression at 3.8%.
End of update
Gold (XAU/USD) shows the fourth consecutive daily loss near $1,917 while hitting the monthly low, despite being inactive in Wednesday’s Asian session. The yellow metal’s losses could be tied to firmer US Treasury yields and market anxiety ahead of high-level events.
That said, 10-year US Treasury yields ended Tuesday unchanged despite rallying back to mid-2019 levels during the first day, down one basis point (bps) to 2.149% at the latest. Along the same line, the five-year bond coupon is also easing from the highest levels since May 2019 marked the previous day. Additionally, S&P 500 futures are posting slight losses despite Wall Street’s positive performance.
In terms of key catalysts, the tussle between Russia and Ukraine continues, but a halt to further deterioration appears to dispel recent fears. Global markets initially cheered hopes for peace between Ukraine and Russia, as Ukrainian Presidential Advisor Volodymyr Zelenskyy signaled, before Russian President Vladimir Putin said kyiv is not serious about seeking a mutually acceptable solution. Following this, Mykhailo Podoliyak, one of the representatives of Ukraine at the Russian-Ukrainian negotiations, cites a margin of compromise. It should be noted that the UK has added more sanctions on Russia, while Japan is ready to remove Moscow from privileged trade status. In return, Moscow banned the Canadian Prime Minister from entering his country and imposed sanctions on US President Joe Biden.
Additionally, China has proven to be a new risk for the markets with an increase in local covid numbers and shutdowns in several cities, the latest being near the capital Beijing.
Of note, the U.S. Producer Price Index (PPI) matched expectations for 10% annual growth, while the NY Empire State Manufacturing Index recorded the biggest decline since May 2020, adding to the pre-Fed market anxiety. The recent easing of inflation expectations in the United States from the record high, as signaled by the 10-year equilibrium inflation rate according to data from the Federal Reserve Bank of St. Louis (FRED), also tests Fed hawks.
Going forward, gold traders will pay close attention to how the Fed combats inflation fears, which in turn will set the stage for the near-term trend. Headlines from China and news from Russia and Ukraine will also be important as the risky mood could shield the metal from a blow if the Fed manages to praise the USD bulls. .
Gold warrants a sharp break lower of a six-week-old bullish trend line and the 100-SMA, amid bearish MACD signals, around a two-week low.
Although oversold conditions on the RSI on the four-hour chart are testing gold’s declines, the 50% Fibonacci retracement (Fibo.) of the January-March rise and the weekly resistance line defy any corrective pullback around $1,925 and $1,942 respectively.
Even if the quote manages to break above 1942, the 100-SMA and previous support line near $1948 and $1954 in that order will act as additional upside screens before giving buyers control. gold targeting the $2,000 threshold.
Meanwhile, a convergence of the 200-SMA and the 61.8% Fibo. Near $1,890 is on the XAU/USD bear radar ahead of monthly horizontal support near $1,877.
Gold: four-hour chart
It should be noted that the daily chart also highlights $1,877 as key support, comprising highs marked in November 2021.
Gold: daily chart
Trend: further weakness expected