Key Takeaways:
- Aggressive Federal Reserve interest rate increases weighing on the gold price.
- Gold price has fallen $400 since its all-time high.
- Language from FOMC Press Conference will be watched closely for clues such as "wait and see."
Gold price reached its all-time high of $2,074.97 on Aug. 7, 2020, but has since reeled under the pressure of a hawkish Federal Reserve.
Because the US central bank began aggressive interest rate increases in the spring of 2021 to curb inflation, gold lost strength. As a result, trading is presently under $1,700 again. The next Fed interest rate decision is on Sep. 20.
Traders are looking at this key event to learn if gold will be back on track or drop further.
It is important to note that many traders consider gold a safe haven. But the precious metal is not a safe haven. Instead, it could be termed as a “store of value.” Safe haven investments are in US Treasuries or currencies such as the Japanese Yen and US Dollar.
Gold does not earn interest. For example, when Treasury Yields go higher, gold sellers quickly show up and move their money where it can increase with safety elsewhere. Gold’s most sensitive friend or foe is the 10-year US Bond Yield.
The gold price typically goes down when 10-year yields go up, and vice versa.
Over the last six months, the gold price has fallen $400 per ounce or 19.45%. There is an 80% probability the Fed will raise interest rates by 75 basis points (bps) and a 20% chance of a 100 bps increase. Current market positioning suggests that Treasury Bonds will go lower, which is gold-positive.
Gold Price Technical Analysis
Unless Wednesday’s outcome is highly dramatic, technical indicators will help reveal the gold price direction in the days ahead.
– First major support is at 1649.64
– First major Fibonacci resistance is at the 38.2% level of 1702.97
– 50-day MA is at 1736.68
– 100-day MA is at 1785.04
With gold below $1700, both major MAs reveal strong sell signals.
XAU/USD key levels on the D1 (Daily) chart:
Support: 1649.64 1635.55 1611.06
Resistance: 1688.22 1712.71 1726.81
Press Conference
Market participants will closely watch Federal Open Market Committee (FOMC) Chairman Jerome Powell’s press conference. If Mr. Powell raises concerns over recession risks in 2023, the US Dollar will likely find it difficult to gain against gold.
Mr. Powell will probably emphasize unwavering commitment to battle inflation. Accordingly, the Fed is expected to keep an aggressive approach in raising interest rates as needed.
