Gold price retreats on Monday, down over 0.6% following last week’s Federal Reserve (Fed) interest rate hike. That 25 bps hike initially pushed US bond yields higher, but the US Dollar Index (DXY) has recovered some ground on Monday despite Treasury yields falling in the back half. The XAU/USD trades at $4,350 on Monday after peaking at nearly $4,383.
XAU/USD retreats as renewed tightening expectations outweigh softer Treasury yields
The yellow metal feels the pressure at the beginning of the week, while market mood remains upbeat despite the Fed’s decision. The Buck remains supported by expectations of further tightening by the US central bank, which has regained some credibility after the decision due to the closer ties between Fed Chair Kevin Warsh and US President Donald Trump.
The US Dollar Index (DXY), which measures the performance of the US currency against the other six, is up 0.2% at 100.42.
Expectations of diplomatic progress between the US and Iran pushed Oil prices lower after US President Trump indicated he would be willing to meet with his Iranian counterpart, who is anticipated to attend the UN General Assembly this week.
Aside from this, US Treasury yields remained depressed, but Bullion has failed to rally despite its inverse correlation with US yields. Despite this, money markets seem confident that the Fed will increase rates toward the end of the year, with traders expecting at least 33 basis points of tightening.
Federal Reserve officials unleashed
The St. Louis Fed President, Alberto Musalem, commented that “without further policy restraint, it is more likely inflation will remain substantially above 2% target in 18 months from now.” He added that further rate hikes are needed.
The Chicago Fed's Austan Goolsbee said that the Fed can’t ignore repeated and consistent supply shocks and that they must respond in a way that may cause economic hardship. He commented that the path to bringing inflation back to the 2% goal may not be painless.
On Sunday, the Minneapolis Fed President Neel Kashkari said that inflation is too high across all sectors of the US economy, not just Oil.
Given the backdrop and the hawkish tilt by most Fed officials, the Gold price should be capped on the upside. Nevertheless, rising geopolitical tensions and broad US Dollar weakness could prompt buyers to buy the yellow metal.
Ahead, the US economic docket will feature the ADP Employment Change 4-week average, speeches by Fed officials and S&P Global Flash PMIs.
XAU/USD technical analysis: Gold struggles at $4,400 aims toward the 100-day SMA
From a technical perspective, Gold is poised for further consolidation but slightly tilted to the downside. The Relative Strength Index (RSI) is aiming lower and has turned bearish. From a market structure standpoint, the successive series of lower lows and lower highs stays intact.
On the downside, XAU’s first support is the low of the day at $4,322. A breach of the latter will expose the 100-day Simple Moving Average (SMA) of $4,319, followed by the 50-day at $4,295. If those levels are taken out, the next demand zone is the $4,000 milestone.
If buyers moved in and reclaimed $4,400 on a daily basis, it opens the door for some range-trading within the $4,400 - $4,500 area. On further strength, the next stop is the 200-day SMA at $4,541.
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