The current state of the gold market is one of struggle as the price of gold hangs near a one-week low. This lack of meaningful traction can be attributed to hawkish expectations from the Federal Reserve. The robust US consumer and producer inflation figures released last week have fueled speculations that the Fed will maintain higher-for-longer interest rates. This narrative supports elevated US Treasury bond yields, which, in turn, acts as a headwind for the non-yielding yellow metal.
Furthermore, a generally positive risk tone in the market is also contributing to the lackluster demand for gold. Despite geopolitical risks stemming from ongoing conflicts in the Middle East and the Russia-Ukraine war, traders are hesitant to place aggressive bets on gold. The safe-haven appeal of gold is being overshadowed by the overall positive sentiment in the market, limiting its upward potential.
Traders are currently adopting a cautious approach ahead of the crucial Federal Open Market Committee (FOMC) decision. The market is waiting for cues about the Fed’s rate-cut path before making any significant directional bets. The outcome of the FOMC meeting and updated economic projections, along with Fed Chair Jerome Powell’s comments, are expected to influence the future trajectory of the XAU/USD.
Investors are adjusting their expectations for interest rate cuts in light of the strong US inflation figures released recently. The possibility of an interest rate cut in June is currently below 50%, signaling a shift in market sentiment. The Fed’s 2024 median interest rate projection could also change, impacting the direction of the gold price.
On a technical note, the recent pullback in the gold price has formed a bullish flag pattern within a downward-sloping channel. Despite the recent decline, technical indicators on the daily chart suggest a positive setup for gold. Support levels at $2,145-2,144 are holding strong, acting as a pivotal point for the gold price. A breakout above the descending channel could pave the way for further appreciation towards the $2,175-2,176 intermediate hurdle and ultimately the record peak around the $2,195 mark.
The gold market is currently facing headwinds due to hawkish Fed expectations and a positive risk tone in the overall market. Traders are awaiting the outcome of the FOMC meeting for guidance on the future rate-cut path. Technical indicators suggest a bullish setup for gold, with key support levels in place to guide future price movements. Overall, the gold price remains in a consolidation phase, with potential for an upward breakout if key resistance levels are breached.
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