- The price of gold remains on the downside, as the day of the Fed arrives.
- The Fed will continue its flight to curb inflation, despite an impending recession.
- The XAU/USD is forming lower highs on the 4H chart as the RSI turns bearish.
The price of gold has been trading listlessly in tepid market sentiment on Fed day so far, holding the lower level of this week’s trading range. Markets remain cautious ahead of the all-important Fed rate decision and planned Xi-Biden talks. However, resilient earnings from US tech titans Alphabet Inc. and Microsoft Inc. offer a glimmer of hope for investors, but they are holding back on a directional trajectory in bullion, anticipating higher rates from the 75 basis point Fed. The yellow metal is likely to see choppy trading within a range set ahead of the Fed showdown. The further rise in US Treasury yields is negated by the falling dollar, leaving the price of gold more or less stable above the $1,700 mark.
Recession fears continue to loom amid the gas crisis in Europe, worries about China and aggressive central bank tightening. While Fed Chairman Jerome Powell is unlikely to be deterred by fears over growth, he is likely to stick to his promise to get inflation under control at the July meeting. Therefore, the decline looks more compelling for the non-interest bearing precious metal. Only a message of a slowdown in the Fed’s tightening path for September and beyond and/or hints of a spike in inflation could be interpreted as dovish and could deliver the much-needed rise in the price of gold.
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XAU/USD price saw good trades in both directions on Tuesday, but eventually settled into the red zone amid a strong rebound in US Treasury yields from multi-week lows. Venture streams remained in vogue as Europe’s gas crisis deepened and sounded the recession bell after Russia’s Nord Stream 1 gas pipeline was set to operate at just 20% capacity from Wednesday. The International Monetary Fund (IMF) has cut growth forecasts for the next 18 months after warning that the world’s three largest economies have all stalled, according to The Guardian. Investors also refrained from investing their capital in riskier assets ahead of the US tech results and the Fed event.
Gold Price Technical Outlook: Four-Hour Chart
Multiple rejections at the bearish 100-Simple Moving Average (SMA), now at $1,727 on the four-hour chart, proved too costly for gold bulls. The metal therefore abandoned the horizontal 21 SMA at $1,722.
The Relative Strength Index (RSI) has peeked into bearish territory, currently at 48.78, suggesting that the bearish bias will likely remain intact.
Immediate support is placed at the horizontal 50 SMA of $1,714, below which $1,700 could be challenged again.
On a hawkish Fed rate, the bears could attack the 16-month lows of 1,681.
Alternatively, acceptance above the 100 SMA will require a test of the psychological level of $1,750, above which the horizontal trendline resistance at $1,752 will come into play.