Gold Price to Recover if Fed Rate Hike Risk & USD Strength Ebb
GOLD OUTLOOK: FED DOT PLOT WEIGHING ON XAU/USD PRICE ACTION
- Gold price action plunged -5.9% last week and now trades back in the red year-to-date
- XAU/USD was strongarmed lower by a US Dollar squeeze thanks to fresh Fed taper fears
- The precious metal might rebound higher off support as the FOMC downplays rate hike risk
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Gold and silver prices extended their post-FOMC nosedives throughout last week. The precious metals dropped -5.9% and -7.7% respectively. Selling pressure across XAU/USD and XAG/USD largely followed the huge influx of US Dollar strength in response to the Federal Reserve bringing forward its taper timeline.
Specifically, the latest Fed dot plot revealed that central bank officials see two interest rate hikes by the end of 2023. This compares to market expectations only looking for one rate hike in 2023 and the prior dot plot that showed less than half of FOMC officials penciling in rate increases by year-end 2023. In light of Fed Chair Powell downplaying the significance of the dot plot, however, there seems to be potential for gold price action to claw back recent downside.
XAU/USD – GOLD PRICE CHART: WEEKLY TIME FRAME (NOVEMBER 2019 TO JUNE 2021)
Not to mention, nearby support at the $1,765-price level stands out as noteworthy technical barrier that gold bulls might look to defend. Below this technical support zone resides a long-term ascending trendline in addition to the $1,675-price level, which is underpinned by the bottom Bollinger Band and year-to-date lows.
Rebound efforts could see gold price action ricochet back toward the $1,900-handle, though bulls must first overcome resistance posed by the 20-week simple moving average. Nevertheless, XAU/USD will likely continue mirroring swings in real yields the broader US Dollar.
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.