In the wake of the Federal Reserve’s hawkish stance, gold prices have experienced a downward slide for the third consecutive day when measured against the US Dollar (USD). This decline follows the central bank’s decision, which leaned in favor of a stronger Greenback. As a result, US Treasury bond yields surged, and XAU/USD traded at $1919.74, marking a 0.56% loss after initially reaching a daily high of $1931.57.
The continued descent in gold prices is primarily attributed to the relentless ascent of US Treasury yields and the resolute strength of the US Dollar. The aftermath of the Federal Reserve’s decision has left market participants in a risk-averse mindset. This sentiment has translated into a decline in US equities, a rapid increase in US Treasury bond yields, and the US Dollar firmly holding its ground, surpassing the 105.00 threshold.
The catalyst behind this market reaction lies in the Federal Reserve’s decision to maintain interest rates while revising upward its projection for the Federal Funds Rate (FFR) for 2024, from 4.6% to 5.1%. Although policymakers anticipate another 25 basis point rate hike by year-end, market participants remain somewhat skeptical about the possibility of a November hike, although less so for December. The implied probability of a 25 basis point hike in November stands at 26.3%, while December registers a more robust 38.4%.
This shift in the Fed’s stance led to a decline in gold prices as US Treasury bond yields surged, culminating in US real yields reaching a year-to-date high of 2.115%, as demonstrated by US 10-year TIPS (Treasury Inflation-Protected Securities).
Furthermore, several central banks worldwide opted to leave their interest rates unchanged but echoed the Federal Reserve’s mantra of committing to keeping rates “higher for longer.” The Bank of England (BoE), for instance, maintained its rates at 5.25% while signaling the possibility of additional rate hikes. Similarly, the Swiss National Bank (SNB) kept its policy rates steady at 1.75% and issued a warning about potential future tightening measures.
On the economic data front, the US witnessed unemployment claims for the week ending September 16 coming in below estimates at 201,000. Conversely, the Philadelphia Fed Manufacturing Index, serving as a gauge for business activity, plummeted to -13.5, falling short of forecasts of -0.7. Meanwhile, Existing Home Sales for August displayed a slight improvement with a -0.7% month-on-month change compared to July’s -2.2% decline.
XAU/USD Price Analysis: Technical Outlook
Following a notable spike in response to the Federal Reserve’s decision, the XAU/USD pair retraced and concluded the day with a close below the critical 50-day moving average (DMA) at $1930.40. Subsequently, the yellow metal extended its losses beyond the Asian session. The downward trajectory in price action led to the breach of significant technical support levels, including the confluence of the 20 and 200-DMA around $1925.00/58. This development exposed the non-yielding precious metal to additional selling pressure. The next key support levels to monitor are the September 14 swing low at $1901.11, followed by the August 21 swing low at $1884.89. The technical landscape suggests that the path ahead for XAU/USD will hinge on its ability to navigate these critical levels and trends effectively.