Gold has broken below $4,300 and is testing its 50-day moving average at $4,275 as traders position for Wednesday's Federal Reserve rate decision. A widely expected 25 basis point hike, driven by hotter jobs, producer price, and consumer price data, has pushed the US 10-year Treasury yield above 5%, pressuring the metal. Momentum indicators are flattening, though, leaving room for a bounce if the Fed disappoints hawks.
Gold has broken below the $4,300 mark and is now testing its 50-day simple moving average at $4,275, with the metal's next move likely set by the Fed's rate decision on Wednesday. Whether that average holds will determine the near-term direction.
Fed seen delivering a hawkish hike
The Fed is widely anticipated to raise its benchmark rate by 25 basis points on Wednesday, a sharp reversal from earlier expectations after a trio of stronger-than-expected data releases — nonfarm payrolls, the producer price index, and the consumer price index — sealed the move. The Bank of England and the Bank of Japan meet Thursday and Friday, respectively, and could add further bearish pressure on gold if they echo the Fed's hawkish tone.
The US 10-year Treasury yield has climbed back above 5%, with the rise showing no sign of stopping amid growing concerns over inflation. In the current environment, there are few upside risks for gold.
Oil rally adds to the inflation repricing
A fresh rally in oil prices has also contributed to the repricing of interest rate expectations, not just for the Fed but for other central banks too. The Trump administration does not seem to be working hard enough to reach a new ceasefire agreement with Iran, and half-hearted attempts such as getting Ukraine and Russia to stop targeting each other's energy facilities are not seen as sufficient to ease the jump in fuel prices. Markets have largely stopped reacting to Trump's running commentary — his latest remark, that an end to the war "will not be long".
Levels to watch in both directions
If the 50-day average is breached, the next target for bears is the $4,200 level, followed by $4,100. A drop below $4,100 would expose June's eight-month low of $3,942, putting gold back on its long-term downtrend path.
However, if the Fed surprises by not raising rates, or hikes without a convincingly hawkish tone, gold could bounce toward $4,400, and then the 200-day moving average at $4,539 before bulls retest the August peak just below $4,700. The stochastics and MACD indicators have both started to flatline, pointing to stalling negative momentum ahead of this week's central bank decisions.
Source: Investing.com
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