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Gold weakens to main trend line after FOMC Minutes

  • Gold has fallen to a key trend line after the release of the FOMC Meeting Minutes.
  • The Minutes showed little enthusiasm from Fed officials to lower interest rates, a negative result for Gold.
  • Gold's short-term trend is bearish, but it has reached an important trend line and is finding support.

He Gold (XAU/USD) It has fallen more than half a percentage point to $2,365 on Thursday, reaching a major trend line on the chart (see chart in the section below) where it is currently finding support.

The precious metal weakened following the release of Federal Reserve (Fed) meeting minutes, which showed policymakers were reluctant to lower interest rates – and even talked about raising them – due to persistent inflationary pressures.

The expectation that interest rates will remain at their current level (or higher) for a long period of time was bearish for Gold. As it is an unprofitable asset, rising interest rates increase the cost of opportunity to hold Gold, which reduces its attractiveness for investors.

The price of Gold continues its bearish reversal after the Fed Minutes

Gold fell sharply after the release of the Federal Open Market Committee (FOMC) Meeting Minutes for the April 29-May 1 policy meeting on Wednesday.

The Minutes showed that, although policymakers expected price pressures to eventually ease, they had not fallen fast enough to justify a cut in the target range for the federal funds rate, which would remain at its 5.25% level. – 5.50% “at least until September”, according to FXStreet.

The strength of the labor market emerged as a determining factor for future policy. The Fed's rate-setters even debated raising interest rates to address inflation. This added a more aggressive touch to proceedings and echoed similar discussions in the Reserve Bank of Australia (RBA) meeting minutes.

The Minutes catalyzed a rise in the US Dollar, which has a negative correlation with Gold.

The next major release for Gold is the US Purchasing Managers' Index (PMI) for May at 13:45 GMT on Thursday. If the data is positive it could have a negative impact on Gold, and vice versa if it is weaker.

Technical Analysis: Gold Retraces Key Trend Line

The price of Gold (XAU/USD) has fallen to the support of the dark gray main trend line that reflects the uptrend since February.

Since the decline from all-time highs, it is now likely in a short-term downtrend that favors short positions over long positions.

XAU/USD Daily Chart

Gold price is currently retracing from the trend line and if it continues to rise, it could rise towards the resistance at $2,371, the May 16 higher low. After that, however, it will probably turn around and continue falling in line with the short-term downtrend.

If Gold definitively breaks below the dark gray trend line, it will be a very bearish signal. In that case, it could fall to a conservative target at $2,305 (Fibonacci 0.618% of the previous bearish movement) or to $2,275 (100% of the previous bearish movement).

A definitive breakout would be one that was accompanied by a long red candle that closed near its low or three red candles in a row that broke below the trend line.

However, the precious metal's medium and long-term trends remain bullish and, given the old adage that “the trend is your friend”, this suggests that the risk of a recovery remains high. At the moment, the only sign of a recovery is that Gold has found support at a major trend line. However, there is no indication that a reversal is occurring.

A break above the new all-time high of $2,450 would confirm the continuation of the uptrend and a rally towards the next target, probably at the psychologically significant level of $2,500.

economic indicator

FOMC Minutes

FOMC is the acronym for the Federal Open Market Committee, which holds 8 meetings a year and reviews economic and financial conditions, determines the appropriate direction of monetary policy, and assesses risks to its long-term goals of price stability and sustainable economic growth. . The FOMC Minutes are published by the Board of Governors of the Booking Federal and constitute a clear guide to the future interest rate policy of the United States.

Why is it important for operators?

Federal Open Market Committee (FOMC) minutes are typically released three weeks after policy decision day. Investors are looking to this publication for clues about the prospects for monetary policy, in addition to the division of the vote. A bullish tone is likely to boost the dollar, while a dovish stance is considered negative for the dollar. It should be noted that market reaction to the FOMC Minutes could be delayed as the media does not have access to the publication prior to its release, unlike the FOMC Policy Statement.

Source: Fx Street

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