Gold Tumbles as Fed Meeting Gets Underway
Gold prices fell sharply on Tuesday as the U.S. dollar is getting traction thanks to rising U.S. bond yields ahead of the Fed's interest rate decision. Bond yields and the greenback managed to stay in positive territory despite mixed housing data from the U.S. economy.
At the time of writing, the spot price XAU/USD is trading at the $1665 zone, 0.65% below its opening price, after scoring a daily high of $1679 earlier in the session.
Ahead of the Federal Reserve decision, U.S. bond yields reached fresh cycle highs, with the 2-, 5- and 10-year rates – which could be seen as the opportunity cost of holding the non-yielding gold – peaking at 3.992%, 3.777%, and 3.604%, respectively. The WIRP tool suggests that investors favor a 75 bps hike and bet on smaller odds of nearly 20% of a bigger increase of 100 bps. The swaps markets are now pricing a terminal rate of 4.75%.
The advance of the yields supported the dollar, whose DXY index trades 0.55% higher on the day at the 110.20 area.
For the next few days, gold prices could take another hit as on Thursday, the central banks of Japan, Switzerland, and the U.K. – among others – will announce their monetary policy decisions. Despite the fact that it is expected that the BoJ will cut interest rates by 0.1%, the markets are expecting 50 bps hikes announcements by the Swiss National Bank and the Bank of England, which could have a significant impact on risk sentiment and gold prices.
According to the daily chart, the short-term technical outlook for XAU/USD remains bearish. The RSI holds a negative slope below its midline and moves towards oversold territory, while the MACD printed a higher red bar, indicating growing selling pressure.
On the downside, the next support area stands at the cycle low struck last Friday at $1654. If this level is lost, the XAU/USD could test the $1640 and $1620 areas, last seen in April 2020. On the other hand, resistance levels are seen at the $1660 zone, followed by the $1700 psychological mark and the 20-day SMA, currently at $1710.
At the time of writing, the spot price XAU/USD is trading at the $1665 zone, 0.65% below its opening price, after scoring a daily high of $1679 earlier in the session.
Ahead of the Federal Reserve decision, U.S. bond yields reached fresh cycle highs, with the 2-, 5- and 10-year rates – which could be seen as the opportunity cost of holding the non-yielding gold – peaking at 3.992%, 3.777%, and 3.604%, respectively. The WIRP tool suggests that investors favor a 75 bps hike and bet on smaller odds of nearly 20% of a bigger increase of 100 bps. The swaps markets are now pricing a terminal rate of 4.75%.
The advance of the yields supported the dollar, whose DXY index trades 0.55% higher on the day at the 110.20 area.
For the next few days, gold prices could take another hit as on Thursday, the central banks of Japan, Switzerland, and the U.K. – among others – will announce their monetary policy decisions. Despite the fact that it is expected that the BoJ will cut interest rates by 0.1%, the markets are expecting 50 bps hikes announcements by the Swiss National Bank and the Bank of England, which could have a significant impact on risk sentiment and gold prices.
According to the daily chart, the short-term technical outlook for XAU/USD remains bearish. The RSI holds a negative slope below its midline and moves towards oversold territory, while the MACD printed a higher red bar, indicating growing selling pressure.
On the downside, the next support area stands at the cycle low struck last Friday at $1654. If this level is lost, the XAU/USD could test the $1640 and $1620 areas, last seen in April 2020. On the other hand, resistance levels are seen at the $1660 zone, followed by the $1700 psychological mark and the 20-day SMA, currently at $1710.