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Gold Price Prediction: XAU/USD Stays Strong Above $2020 After the Fed’s Change of Direction

Leon Kramer

ByLeon Kramer

Dec 17, 2023

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  • The upward momentum of gold was interrupted just before reaching the $2050 mark, as investors decided to secure their gains in anticipation of Friday’s trading session.
  • The primary catalyst behind the observed trend was the Federal Reserve’s shift towards a more accommodating stance, thereby creating an environment conducive to a depreciation of the US dollar.
  • The Federal Reserve, while maintaining a data-dependent approach, may refrain from implementing policy-easing measures if solid data supports such a decision.

The price of gold has experienced a slight decline from its recent weekly high of $2047.91 but still maintains a modest gain of 0.15%. Gold is trading at approximately $2030.20 per troy ounce, following a brief dip to a daily low of $2024.37.

Gold Prices Are Being Supported by the Absence of Resistance From Fed Chair Powell

On Wednesday, the Federal Reserve’s decision to maintain rates within the 5.25%-5.50% range surprised the markets, as they also adopted a dovish stance. The central bank’s statement indicated that the job market is experiencing a decline in activity, growth is undergoing moderation, and inflation is exhibiting a downward trend.

However, it was emphasized that inflation remains at an elevated level. While the user’s text suggests a lack of neutrality in the Summary of Economic Projections (SEP), it is essential to note that the SEP itself did not maintain a neutral stance.

The SEP announced the completion of the Federal Reserve’s tightening cycle. Additionally, policymakers anticipate that there will be all three reductions in interest rates in 2024, which is half of the market’s previous expectations for the upcoming year.

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Furthermore, there has been a downward revision in inflation. Moreover, the Gross Domestic Product (GDP) has been adjusted from 2.1% to 2.6% for 2023, while the Unemployment Rate remains unchanged at 3.8% per the latest revision.

It is worth noting that there has been a significant decline in US Treasury bond yields. The 10-year benchmark note has experienced a decrease of 45 basis points, currently standing at 3.932%. Similarly, the 2-year note, which is exceptionally responsive to interest rate changes, has decreased by 35 basis points, reaching 4.382%.

The direction of US bond yields is currently exerting downward pressure on the Greenback, resulting in a decline to four-month lows at 101.77. However, the currency has partially recovered, experiencing a decrease of 0.88% and currently trading at 101.99.

The perceived lack of resistance from Fed Chair Jerome Powell towards overvalued rate cuts provided investors with a rationale to amplify their expectations of the US central bank implementing more extensive policy easing measures, surpassing their initial projections. This occurred despite Powell and his colleagues maintaining the possibility of future rate hikes.

US Retail Sales surpassed expectations in terms of data, contributing to a modest rebound for the Greenback. Simultaneously, the filings for unemployment claims in the United States and the preceding week’s report exhibited a lower-than-anticipated outcome, indicating a sustained state of tightness in the labor market.

Upcoming on the agenda for the week is the United States calendar, which will encompass S&P Global Flash PMIs for December, Industrial Production data for November, and the NY Fed Empire State Manufacturing Index.

Examining the XAU/USD Price From a Technical Perspective

The price of gold is currently showing a tendency to rise. However, if Thursday’s price action results in the formation of an inverted hammer, it may indicate the potential formation of a bearish pattern known as an ‘evening star three-candle pattern.’

In the given scenario, sellers may evaluate support levels, including the October 27 high at $2009.42, before reaching the $2000 threshold. The fifty-day moving average (DMA) at $1974.78 is anticipated to experience additional downside.

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Leon Kramer

Leon Kramer

Leon Kramer, a renowned financial author, enlightens Main Forex News readers with his deep understanding of currency markets. His years in global finance, combined with an intuitive grasp of trends, delivers insightful, up-to-the-minute foreign exchange analysis.

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