- Gold is on the defensive and trading lower.
- The Fed is expected to take a dovish tone and the US dollar could be supported.
- Little progress has been made in talks between Ukraine and Russia.
- Gold will extend the downward correction due to the Fed’s aggressive stance.
the price of gold is down 1.5% at the time of writing after falling from a high of $1,954.72 to a low of $1,907.08, falling below a critical level on the daily chart with the downside now fully exposed. Oil prices have been falling and markets are volatile ahead of tomorrow’s US Federal Reserve decision.
This offers something for both bulls and bears in the gold market, but little progress has been made in the Ukraine-Russia talks, with Putin accusing Ukraine of not taking the search for a mutually acceptable solution seriously. This may lend support to the price of gold. However, hopes of an Iran nuclear deal may keep optimism alive and weigh on the yellow metal, as oil has been a major contributor to risk-off sentiment of late that has been supporting the price to the upside.
Indeed, US stocks rose midday on Tuesday as crude oil’s decline deepened. The S&P 500 was up 1.8% by 19:00 GMT. However, European stock markets were weaker, with the Euro Stoxx 50 falling 0.1% while the FTSE 100 fell 0.2%. The US 10-year yield rose just 1.6bps to 2,149%, while the German bond yield fell 4bps.
US producer price inflation eased more than forecast on the eve of a likely rate hike by the Federal Reserve where interest rates are expected to rise. Last week, Fed Chairman Jerome Powell gave the green light for a 25bp lift in March during his testimony to Congress.
The central bank would now be expected to send the message that, despite the ongoing conflict between Russia and Ukraine, the Fed is ready to continue its process of normalizing monetary policy for the rest of the year. That would be expected to support the dollar.
As for the path of the price of gold, it has already shown its cards in the recent break of $1,914, the low of March 2. While this area is acting supportive with price back to $1,920, bearish commitments could see a strong daily close below there in the coming days which could catalyze a substantial selling program.
“If the market has started to price in a future where the growth shock could fade at a faster rate than the inflation shock, as we expected, then gold prices could be especially vulnerable to a more aggressive Fed profile. , opening the door to a deeper consolidation”, explained the analysts of TD Securities.
technical analysis chart
The price is breaking the trend line and has printed an M formation on the daily chart. A reversal to test the contrarian trendline and neckline of the pattern could be in order before the next leg down.
Source: Fx Street
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