- Gold prices have dropped $22.00, 1.20%, on the release of the Federal Reserve's interest rate and statement.
- US Fed funds futures price in full rate hike by April 2023.
- All eyes now turn to the Fed's chairman, Jerome Powell, speaking on a presser.
- Federal Reserve preview: First up, then down? Playbook for trading the Fed
- Fed Press Conference: Chairman Jerome Powell speech live stream – June 16
Update: Gold prices edge lower with substantial losses following the higher US 10-year benchmark yields. The spot price came under selling pressure after Fed Chair Jerome Powell on Wednesday spoke about inflation, the Fed’s dot plot, and tapering plans. The sudden twist in the Cental’s bank tone ignited a fresh round of selling in the precious metal. Gold prices reacted to a rise in the US treasury yields, which rose 1.58% on Wednesday. Investors remain attentive to Central bank projections for the higher inflation expectations for this year, and a possibility of two rate hikes till 2023. The higher interest rates would diminish the shine of the non-yielding asset as they translate into a higher opportunity cost. The US dollar jumped to its highest level in the previous two months at 91.46, making gold more expensive for the other currencies holders.
Gold (XAU/USD) licks its wound around $1,816-17, up 0.30% intraday, following the heaviest drop since January 08 led by US Federal Reserve (Fed) actions. That said, the gold traders keep bounce off $1,803, near to the $1,800 psychological magnet, even as US Treasury yields remain firmer by the press time of Thursday’s Asian session.
Read: Forex Today: Long live King Dollar
US 10-year Treasury yield marks 1.7 basis points (bps) of intraday gain to 1.586%, the highest level in two weeks, but the US dollar index (DXY) struggles to extend the strongest daily jump in over a year while taking rounds to 91.40-38.
Although the US dollar’s sluggish move helps gold prices, strong Treasury yields keep gold buyers in check. Even so, the quote bounces back towards the previous support structure around $1,845, comprising the early May’s tops and Monday’s low.
Moving on, gold traders should keep their eyes on how market players digest the Fed’s drama for fresh impulse.
Gold prices have dropped some 22 bucks on the Federal Reserve's hawkish statement and interest rate decision.
At the time of writing, XAU/USD is trading at $1,839.65, lowest since 12th May and now at daily support structure.
Gold prices are driven by the US Treasury yield curve and the performance of the US dollar in the main and have been more recently linked to the performance of the Us stock market.
Immediately on the release of the statement, the US stock market is down a touch, the US dollar has started to climb by 0.44% to 90.94 in the DXY, the highest since 13th May, while the yield on the US 10-year has also perked up to 1.5310% risking 3%, but the US 5-year yields have jumped to 0.837% from 0.780%.
However, there is nothing dramatic in the immediate aftermath and the focus will now be on the Fed's chairman, Jerome Powell.
Key notes on the Fed, so far
- Benchmark interest rate unchanged; target range stands at 0.00% - 0.25%.
- The interest rate on excess reserves raised to 0.15% from 0.10%
- The median projection shows two hikes in 2023, which suggests FOMC has overall shifted more hawkish.
- US Fed funds futures price in a full rate hike by April 2023.
Overall, this is seen as positive for the greenback, bearish for gold and sets up an AugustJackson Hole taper announcement.
It will be especially important for forex volatility over the summer months that has been at the lowest levels in over a year:
-637594614083342602.jpeg)
Watch Live
Jerome Powell may talk the hawkish reaction down in his presser which can be seen live here:
Gold reaction
Lower hanging fruit for counter-trend traders
This makes for some lower hanging fruit if Powell intends to play down the hawkish statement, considering that that gold is now at a daily support and would be expected to correct higher according to the M-formation:
On the hourly chart, bulls can look for a higher probability setup once immediate resistance is broken to target the prior daily lows:
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.