- Gold Price staged modest recovery from a near one-month low touched earlier this Tuesday.
- Aggressive Fed rate hike bets underpinned the USD and kept a lid on any meaningful upside.
- Recession fears extended some support ahead of the crucial FOMC decision on Wednesday.
Gold Price attracted some buying near the $1,810 region, or a near one-month low set earlier this Tuesday, albeit struggled to capitalize on the attempted recovery move. The XAUUSD seesawed between tepid gains/minor losses heading into the North American session and was last seen trading in neutral territory, just below the $1,820 level.
Gold Price weighed down by Fed rate hike bets
Investors seem convinced that the Federal Reserve will get more aggressive to combat stubbornly high inflation, which surged to over a four-decade high in May. In fact, the markets are now pricing in a 175 bps of tightening over the next three meetings, implying at least one 75 bps rate hike by the September meeting. Moreover, investors now expect the officials to raise rates to nearly 4% by next spring, up from last month’s expected to peak at around 3%, which, in turn, acted as a headwind for the non-yielding gold.
Bullish USD furtherd XAUUSD
The US dollar quickly reversed modest intraday losses and stood tall near a two-decade peak touched the previous day amid elevated US Treasury bond yields. This was seen as another factor that kept a lid on any meaningful upside for the dollar-denominated commodity. Expectations that the US central bank would tighten its monetary policy at a faster pace pushed the US government bond yields to their highest levels in more than a decade on Monday. This, in turn, continued lending some support to the greenback.
USD and Gold
Gloomy economic outlook helped limit losses
The prospect of a more aggressive policy tightening by the Fed and other major central banks has reignited fears of a global recession. Apart from this, worries about the supply chain disruptions caused by the Russia-Ukraine war and the latest COVID-19 outbreak in China capped the initial optimism move in the equity markets. This, in turn, was seen as the only factor that helped limit deeper losses for Gold Price, at least for the time being.
Focus remains on FOMC
Market participants keenly await the outcome of a two-day FOMC monetary policy meeting, scheduled to be announced during the US session on Wednesday. A 75 bps hike would be the biggest since 1994 and would send shockwaves across asset classes. This should be enough to provide a fresh lift to the USD and exert downward pressure on the XAUUSD. Traders, however, seemed reluctant to place aggressive bets and preferred to wait on the sidelines heading into the key central bank event risk.
According to Yohay Elam, Senior Analyst at FXStreet: “A “buy the dip” in stocks has now turned into one for the US dollar. The Fed decision on June 15 will likely include several gut-wrenching twists, and I think the dollar would be able to stomach every move and come out on top.”
Gold Price technical outlook
Gold Price now seems to have found acceptance below a technically significant 200-day SMA and seems vulnerable to weakening further. The negative outlook is reinforced by the fact that oscillators on the daily chart are holding deep in the bearish territory and are still far from being in the oversold zone. Some follow-through selling below the daily swing low, around the $1,810 area, will reaffirm the bearish bias and drag the XAUUSD further below the $1,800 mark. Bears might eventually aim to test the May monthly low, around the $1,786 region, which is closely followed by the YTD low, near the $1,780 zone.
On the flip side, the $1,831-$1,832 region now seems to act as an immediate resistance ahead of the $1,842 area (200-DMA). Sustained strength beyond might trigger a short-covering rally back towards the $1,870 supply zone. Some follow-through buying above the monthly peak, around the $1,879 region, would shift the bias in favor of bullish traders and set the stage for a move towards reclaiming the $1,900 round figure.
Expect volatility with the Fed decision