Gold price retreated after the latest Federal Reserve decision. It retreated to a low of $1,942, a few points above the lowest level this month. This price action coincided with that of American indices like the Dow Jones and Nasdaq 100 which retreated by more than 1%.

Federal Reserve decision

The Federal Reserve concluded its two-day meeting on Wednesday and did what most analysts were expecting. The bank decided to leave interest rates unchanged at 5.25%. It also hinted that it will resume hiking interest rates if inflation remains above 2%.

In a statement, Jerome Powell said that the economy continued growing at a modest pace as the job market have been highly robust. He added that the banking sector was robust following the recent headwinds in the industry.

The Fed believes that tighter credit conditions will have an impact on the ongoing moderate recovery. As I wrote here, there are serious concerns about a liquidity crisis in the US, which could slow the economy in the coming quarters. The statement added:

 

“Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy.”

Gold and stocks retreated because the Federal Reserve warned that it could resume hiking interest rates in the coming months if inflation remains elevated. 

The FOMC meeting came a day after the US published the latest inflation data. According to the statistics agency, the headline inflation dropped to 4.0% in May, the lowest level since 2021.

However, the closely watched core inflation dropped modestly to 5.3% in May. This means that the figure is significantly above the Fed’s target of 2.0%.

I believe that the interest rate pause by the Fed is a positive thing for gold considering that inflation is already falling. 

Gold price forecast

(Click on image to enlarge)

The daily chart shows that gold price rose to an all-time high of $2,081 on May 4th. Since then, gold has lost momentum and is now trading at $1,957, its highest point on February 1st. Gold has dropped below the 50-day moving average while the Relative Strength Index (RSI) has formed a bearish divergence pattern. 

The price has moved below the lower side of the Andrews Pitchfork indicator. Therefore, there is a likelihood that the XAU/USD pair will likely continue falling as sellers target the next key support at $1,900. In the long term, gold price will likely continue rising and move above the year-to-date high of $2,081.

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