- Due to a change in investor sentiment in response to remarks made by the Federal Reserve, the downward trajectory of gold prices continued on Friday.
- The Federal Reserve’s current stance appears to be more inclined towards a hawkish outlook than what was anticipated by market participants in the previous week.
- The US Dollar has experienced notable gains throughout the week, accompanied by an upward trajectory in US Treasury yields. Conversely, Gold has exhibited a decline in value.
The XAU/USD prices are undergoing a downward testing phase on Friday, gradually approaching the $1,930 mark. This movement follows the recent remarks by the US Federal Reserve (Fed) Chairman Jerome Powell, characterized by a hawkish tone. Powell’s comments alluded that the Fed’s monetary policy measures may have failed to effectively curb inflationary pressures satisfactorily.
In conjunction with Federal Reserve Chairman Powell, several Federal Reserve policymakers have made public statements this week indicating that interest rates might not remain at a level that effectively restrains inflation by the Federal Reserve’s 2% target in the foreseeable future.
Adopting a hawkish stance effectively dismantled the prevailing narrative within the broad market, which had previously suggested that the Federal Reserve had concluded its rate hike trajectory and was poised to embark on a cycle of interest rate reductions soon.
Investors in the previous week believed that the Federal Reserve’s rate hike cycle had concluded after an unsatisfactory US Nonfarm Payrolls (NFP) report released last Friday. However, officials from the Federal Reserve have consistently cautioned throughout the week that a solitary unfavorable labor data reading does not possess the capacity to alter the dot plot.
US Consumer Price Index Inflation Data to Help Balance Fed Statements
The US consumer price index (CPI) price reading that is due next week will be even more critical on Tuesday as market participants carefully look over the data to see if inflationary pressures will ease enough to make investors hopeful about the possibility of future interest rate cuts that will lower the cost of borrowing money.
The anticipated trend for US Consumer Price Index (CPI) inflation indicates a potential decrease in the month-on-month figures. Projections suggest that the October headline CPI will likely fall from 0.4% to 0.1%. Meanwhile, the annualized Core CPI, which encompasses the period up to October, is expected to remain stable at 4.1%.
A scenario in which the annualized Core CPI meets or exceeds the target would indicate that the inflation rate in the United States remains more than double the Federal Reserve’s desired level of 2% per annum.
Technical Analysis of the XAU/USD Pair
The decline in Spot Gold on Friday has led to an acceleration in price action, pushing it into bearish territory. Notably, a rejection has been observed of the 50-hour Simple Moving Average (SMA) at the price level of $1,965.
The XAU/USD pair concluded the week predominantly bearishly, exhibiting limited respite regarding bidding activity. Notably, it encountered a pullback from the 200-hour Simple Moving Average (SMA) at the onset of Monday, subsequently experiencing a decline of approximately 3% over the week.
The XAU/USD pair has recently retreated to the 200-day Simple Moving Average (SMA) on the daily candlestick chart. This decline in value aligns with gold bids returning to levels representative of long-term median prices. A 50-day SMA, positioned below the longer moving average, also suggests the potential for further downward movement shortly.