Gold Dips On Fed Officials’ Hawkish Comments

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Gold prices fell on Wednesday after Federal Reserve officials suggested an aggressive reduction of the central bank’s balance sheet and hefty rate increases. Their comments boosted the dollar and U.S. Treasury yields. The greenback jumped to near a two-year peak while yields soared to multi-year highs. Longer-term yield moved up even more quickly and partially reversed inversions in the U.S. curve. The uncertainty around the Ukraine crisis capped the bullion’s losses.

Spot gold is currently trading at $1,918.30 per ounce as of 0745 GMT.

On Tuesday, the usually dovish Fed Governor Lael Brainard said she expects a combination of rapid balance sheet runoff and rate hikes to bring monetary policy to a more neutral position. Her comments sent the stocks down, and the dollar and Treasury yield to multi-year highs. Kansas City Fed President Esther George supported an aggressive Fed Balance sheet reduction and a 50-basis-point rate hike.

City Index senior market analyst Matt Simpson commented that traders’ net-long positions supported gold prices. But the weak safe-haven demand and firm dollar capped the bullion’s upside potential. The hawkish comments from Fed officials overshadowed the release of FOMC minutes later today, he added.

DailyFX analyst Thomas Westwater noted that gold’s recent price action has been consolidative, and its fundamentals are stacked against each other. The Ukraine crisis provides a tailwind for the yellow metal. But Western sanctions against Russia affected global supplies of goods and services, which could keep market volatility and inflation elevated. In turn, the higher inflation forces central banks to take aggressive actions. For example, the Fed is considering a 50-basis-point rate hike in May. And rising interest rates weigh on non-interest-bearing assets such as gold.

FXStreet senior analyst Dhwani Mehta added that Western sanctions spooked investors and bolstered the dollar. The U.S. and its allies prepared new sanctions on Russia over civilian killings in Bucha. Ukraine President Volodymyr Zelensky described the incident as “war crimes.” But Moscow denied targeting civilians and called the evidence a “monstrous forgery” staged by the West to discredit Russia.

The daily price chart shows that gold is attempting to break the lower boundary of recent trading at around $1,915 per ounce. A consistent close below that level could send the bullion down to $1,903, and then to $1,890. Mehta noted that the 14-day Relative Strength Index is trending lower, indicating additional downside for the yellow metal. On the upside, she sees immediate resistance at $1,941 per ounce.