Gold, XAU/USD, FOMC, Real Yield, USD, 1800 Psychological Level – Talking Points
- Gold prices drop as traders price the Fed’s reaction more aggressively
- The surge in real yields put a huge blow on gold’s fundamental background
- XAU/USD is approaching the psychological level of 1,800 as technical indicators weaken
Gold prices collapsed during the Wall Street session on Monday as traders returned after the weekend to absorb the latest inflation data. Last Friday, the US Consumer Price Index (CPI) reignited concerns about persistent inflation, despite the Federal Reserve already raising interest rates earlier this year. Markets are setting a strong opportunity for a 75 basis point rate hike on Wednesday when the FOMC rate decision intersects.
The CPI figure of 8.6% y/y on Friday saw gold initially react to the upside, likely due to the asset’s allure as an inflation hedge. However, bullion reversed those gains, then reversed some as overnight index swaps and other market-based measures quoted in the data. This caused a rush to sell Treasuries, particularly along the short end of the yield curve, sending the US dollar higher and raising concerns about a possible recession.
Also of note is the astounding rise seen in real returns. Gold, as a non-interest bearing asset, is highly influenced by the behavior of the treasury market. Simply put, real yields are Treasury prices that represent inflation. The higher these rates, the less attractive gold becomes to investors. The reaction in real yields will be a vital component of gold prices on Wednesday when the FOMC decision intersects.
Technical Forecast for XAU/USD
He went Prices rose slightly during early trade in the Asia Pacific region after falling sharply overnight. The current movement may not be more than a comfortable height. If so, the move down may resume soon. Psychological level 1800 serves as a prominent target for the bears. A breakout below will open levels that have not been traded since early 2022. MACD has crossed below its signal line, which is a bearish signal.
XAU/USD daily chart
The graph was created using TradingView
— By Thomas Westwater, Analyst for DailyFX.com
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