Gold pulls back from two-week high ahead of FOMC decision

The price of gold rose to $1937.35—a two-week high—before falling to $1931.77—a decrease of 0.06%. In the meantime, the US 10-year Treasury note yield rises to a 16-year high of 4.367%, depressing gold prices.

Investors watch the Federal Reserve’s “dot plots” and revised economic estimates closely for signs of a rate hike. After reaching a two-week high of $1937.35, the price of gold is now declining as investors wait for the US Federal Reserve to announce its monetary policy.

Before the Fed makes its decision, US Treasury bond yields are rising, which is a disadvantage for the yellow metal because it avoided colliding with the 100-DMA. The XAU/USD is currently trading at $1931.77, down 0.06 percent.

As investors wait for the Federal Reserve to announce its monetary policy, gold prices decline, under pressure from rising US Treasury yields. While Wall Street keeps printing losses, the yield on US 10-year Treasury bonds reaches a 16-year high of 4.367%.

The Fed money market futures predict that Fed Chair Jerome Powell and his colleagues will hold rates higher for a longer period of time, at least until July 2024, while maintaining the present range of 5.25%-5.50%.

The most recent data showed that inflation has seen consecutive increases, yet the US central bank decided not to raise interest rates in September. The likelihood of the November and December meeting has decreased, which may indicate that market participants do not anticipate further rate increases by the end of 2023.

Market participants would be concentrating on the “dot plots” to examine the US central bank interest rate path, despite the fact that the Fed’s decision is significant. The most recent Summary of Economic Projections (SEP) indicates that the Fed’s median forecast predicts a 5.6% peak. Because they anticipate that rates will be capped at 5.50%, interest rate traders may be caught off guard by a confirmation.

The US Dollar Index (DXY) is currently holding steady at about 105.14, up 0.06%, supported by high US Treasury bond yields. Gold prices are being hampered by the US 10-year Treasury note yield, which is currently 4.367%, the highest level in 16 years.

The US Real rates, which may be tracked using TIPS (Treasury Inflation Protected Securities) as a proxy, are another factor that gold traders should be aware of. The accompanying chart, which shows the inverse correlation between the assets, illustrates how the price of XAU/USD decreases when the US 10-year TIPS coupon increases.

On Wednesday, the Fed’s decision would be the first item on the US economic calendar. This would be followed by US housing data, unemployment claims, and S&P Global PMIs.

The 100-DMA serves as resistance at $1945.20 as gold trades sideways inside of a descending triangle that is supported on the downside by a cluster of daily moving averages (DMAs).

Even though it made a higher low on September 14 at $1901.11, it hasn’t managed to surpass the swing high from July 20 at $1987.42. Buyers must take back the latter if they want to change the bias to neutral.

Otherwise, a break below the confluence of the 20 and 200-DMA around $1924.00 could pave the way to challenge $1900, followed by the August 21 daily low of $1884.89.