Gold's Recovery Falters After Fed's Hawkish Skip
Alex Boltyan | Jun 14, 2023 04:38PM ET
Gold prices fell sharply and erased intraday gains following the Federal Reserve's decision to skip a rate hike on Wednesday.
At the time of writing, the spot price, XAU/USD, is trading at the $1,945 area, little changed on the day, having pulled back from an intraday peak of $1,960 an ounce.
The Federal Open Market Committee (FOMC) announced its decision to maintain the target range for the federal funds unchanged at 5.00%-5.25% following ten consecutive hikes. Although the (unanimous) decision was widely anticipated on the back of cooler inflation figures for May, the dot plot and Chair Jerome Powell's speech offered a hawkish message and boosted the US dollar.
The Fed economic projections showed that most FOMC members anticipate the terminal rate to reach the 5.50%-5.75% range. At the presser, Powell noted that risks of overdoing and underdoing are closer to being in balance and highlighted that rate cuts wouldn't be appropriate this year.
This hawkish stance boosted US Treasury yields across the curve, with the 10-year yield rising from 3.78% to 3.85% and the 2-year from 4.64% to 4.80%. The US dollar strengthened, and gold took a hit as higher interest rates increase the metal's opportunity cost while reducing the demand as a hedge against inflation.
From a technical perspective, XAU/USD holds a short-term bearish bias according to indicators on the daily chart. A loss of the 100-day simple moving average (SMA) at $1,940 would expose the $1,900 area. On the other hand, a recovery past the 20-day SMA at the $1,960 area is needed to improve the short-term outlook, aiming at the $2,000 level.
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