Gold, XAU/USD, Federal Reserve, Jerome Powell – Briefing:
- Gold prices declined almost 2% as Treasury yields fell on Tuesday
- Markets have been pricing in swift Fed cuts since SVB’s collapse
- All eyes now turn to Jerome Powell, will the central bank capitulate?
- XAU/USD technical setup before the Fed is looking increasingly bearish
Recommended by Daniel Dubrovsky
How to Trade Gold
Gold prices sank almost 2% on Tuesday, marking the worst single-day performance since February 3rd. The anti-fiat yellow metal struggled amidst a 4.7% increase in the 2-year Treasury yield as the S&P 500 pushed higher. The US benchmark stock index is up about 2.3% this week so far. If equities hold onto their gains, we could be looking at the best week since the end of January.
Calm is appearing to reinforce itself in financial markets after actions were taken to alleviate concerns in the financial sector since Silicon Valley Bank collapsed. The VIX market ‘fear gauge’ is down 16.1% this week so far in the largest decline in about a year. With that in mind, what are the remaining 24 hours looking like for gold?
All eyes are turning to the Federal Reserve rate decision at 18:00 GMT. A 25-basis point rate hike to 5% from 4.75% is priced in. Chair Jerome Powell’s press conference then starts at 18:30 GMT. Since SVB’s collapse, markets have priced in over 100 basis points in cuts towards the end of this year after tomorrow’s delivery. That has benefited the yellow metal.
The Fed faces a tough choice given a lack of timely economic data after SVB’s collapse. This is especially considering that prior to it, inflation expectations were heating up again after solid economic data, especially from the labor market. A pause in the tightening cycle could bode well for gold. But, efforts to continue fighting inflation would likely hurt XAU/USD. As such, volatility risk is elevated.
XAU/USD Daily Chart
From a technical standpoint, things are shaping up to be quite wobbly for gold. That is because a bearish Evening Star candlestick pattern formed. Further downside confirmation would open the door to extending lower, placing the focus on the 100-day Simple Moving Average (SMA). The latter could hold as support pivoting prices higher. Key resistance is the 1978 – 1998 zone from April 2022.
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Chart Created Using TradingView
— Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com
To contact Daniel, follow him on Twitter:@ddubrovskyFX
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