Gold Price Index Retreats As Bulls Defeated On Hawkish Fed

The Gold Price Index, XAU/USD, is under pressure as the New York session’s volatility dies down following the early morning chaos that has resulted in plenty of two-way business in financial markets.

Gold initially moved lower after the post-15-minute candle’s toing and froing, sliding to $1,825. This was before the markets bought into the idea that inflation was not only a US problem but much more of a macro concern. This would therefore lead to other central banks needing to tighten the monetary policy belt as well.

Other major currencies such as the Euro, pound and even the commodity currencies rallied on the basis that one of the best hedges from inflation out there are commodities and that central banks would turn more hawkish.

This set gold’s fire alight as well which eventually topped out at $1,841.96 before profit-taking ensued and as US yields rallied again, encouraged by hawkish Fed sentiment. The 2-year US Treasury yield has rallied 18.52% on the day to a high of 1.587% after opening at 1.3650%.

Shortly after the US dollar started to slide, the Federal Reserve’s James Bullard who is a voter in 2022 spoke out with concerns over how hot the January inflation data was. He even advocated for mid-meeting rate hikes at the Fed, calling for 100bps in hikes by July. US rate futures price in 157bps of tightening in 2022.

Gold prices bounced sharply on a volatile session. Following CPI data, XAU/USD tumbled to $1,821, hitting a two-day low. A few minutes later, it rebounded above $1,830, approaching weekly highs. The rebound suggests some underlying strength, but it needs to break firmly above $1,835 to open the door to more gains.

Economic data from the US showed the annual CPI rate rose to 7.5% in January, the highest level since 1982, and above the 7.3% expected. The numbers reinforced rate hike expectations from the Federal Reserve and boosted the dollar across the board.

After the opening bell at Wall Street, the greenback reversed and erased all gains, as stocks also moved back to the upside. US yields pulled back after the post CPI spike to fresh monthly highs.

The “buy the rumor, sell the fact” patterns favoured gold prices. XAU/USD is trading back above $1,830. It still faces resistance at $1,835, and a break higher could lead to more gains and a move toward $1,850. If it fails to hold above $1,830 on Thursday, then a corrective move seems likely. The initial support is seen at $1,820, followed by $1,815 and $1,808.