Gold Price Forecast: XAU/USD retreats from two-week highs ahead of Fed decision

• Gold price hit a two-week high of $1,937.35 before retreating to $1,931.77, losing 0.06%.
• The 10-year US Treasury yield hits a 16-year high at 4.367%, weighing on Gold.
• Investors are eagerly awaiting the Federal Reserve’s “dot plots” and updated economic projections for clues about rate hikes.

The price of Gold retreats after reaching a two-week high of $1,937.35, as investors remain on the sidelines awaiting the US Federal Reserve’s monetary policy decision. US Treasury yields are rising ahead of the Fed’s decision, a headwind for the yellow metal, which nearly crashed into the 100-DMA. At the time of writing , the XAU/USD pair is trading at $1,931.77, losing 0.06%.

Gold retreats as investors await Federal Reserve monetary policy announcement, with rising US Treasury yields adding pressure

Wall Street continues to pile up losses, while the 10-year US Treasury yield hits a 16-year high of 4.367%. Tomorrow, Fed Chair Jerome Powell and his colleagues are expected to keep rates in the current range of 5.25%-5.50% and to keep them higher for longer, at least until July 2024, the figures show. Fed money market futures.

Even though the latest round of data showed inflation has seen consecutive spikes, the US central bank is set to skip a rate hike in September. According to CME’s FedWatch tool, the probabilities for the November and December meeting have dropped, suggesting that traders do not expect additional rate hikes towards the end of 2023.

Although the Fed’s decision is important, market participants would be focused on the “dot plots” to review the path of interest rates of the US central banks. According to the latest Summary of Economic Projections (SEP), the Fed median estimates that rates will peak at 5.6%. A confirmation could catch interest rate traders off guard, who expect rates to be capped at 5.50%.

Meanwhile, the US Dollar Index (DXY) remains firm around 105.14, with gains of 0.06%, supported by elevated US Treasury yields. US 10 Treasury yields are trading at 4.367%, their highest level in 16 years, providing a headwind for Gold prices.

Meanwhile, Gold traders should also keep an eye on US real yields, which could continue using TIPS (Treasury Inflation Protected Securities) as a proxy. When the 10-year TIPS coupon rises, the price of XAU/USD falls, as shown in the chart below, illustrating the inverse correlation between the assets.

The US economic agenda will include the Fed decision on Wednesday, followed by US housing data, jobless claims and S&P Global PMIs.

XAU/USD Price Analysis: Technical Outlook

Gold is trading sideways within a descending triangle, cushioned to the downside by a confluence of daily moving averages (DMA), with the 100 DMA acting as resistance at $1,945.20. Although it recorded a higher low on September 14 at $1,901.11, it has failed to print a higher peak above the July 20 swing high at $1,987.42. If buyers want to change the bias to neutral, they must recover the latter. Otherwise, a break below the confluence of the 20 and 200 DMAs around $1,924.00 could pave the way to challenge $1,900, followed by the August 21 daily low at $1,884.89.