GOLD OUTLOOK: FED DOT PLOT WEIGHING ON XAU/USD PRICE ACTION
- Gold price action has plunged -5.5% so far this week and trades back in the red year-to-date
- XAU/USD getting strongarmed lower by a US Dollar squeeze thanks to fresh Fed taper fears
- The precious metal might rebound higher off support as the FOMC downplays rate hike risk
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Gold and silver prices extended their post-FOMC nosedives during Thursday’s trading session. The precious metals are now down -5.5% and -7.2% on the week respectively. Selling pressure across XAU/USD and XAG/USD largely follows the huge influx of US Dollar strength in response to the Federal Reserve bringing forwardits taper timeline.
Specifically, the latest Fed dot plot revealed that central bank officials see two interest rate hikes by the end of 2023. This compares to market expectations only looking for one rate hike in 2023 and the prior dot plot that showed less than half of FOMC officials penciling in rate increases by year-end 2023. In light of Fed Chair Powell downplaying the significance of the dot plot, however, there seems to be potential for gold price action to claw back recent downside.
XAU/USD – GOLD PRICE CHART: WEEKLY TIME FRAME (NOVEMBER 2019 TO JUNE 2021)
Chart by @RichDvorakFX created using TradingView
Not to mention, nearby support at the $1,765-price level stands out as noteworthy technical barrier that gold bulls might look to defend. Below this technical support zone resides a long-term ascending trendline in addition to the $1,675-price level, which is underpinned by the bottom Bollinger Band and year-to-date lows. Rebound efforts could see gold price action ricochet back toward the $1,900-handle. Nevertheless, XAU/USD is likely to continue facing headwinds until the rally in real yields stabilizes and the US Dollar squeeze finishes running its course.
— Written by Rich Dvorak, Analyst for DailyFX.com
Connect with @RichDvorakFX on Twitter for real-time market insight
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.