Gold Latest: XAU/USD deepens its pullback as USD strengthens
Gold has eased back from new record highs as the US dollar recovers some bullish momentum. XAU/USD broke a new all-time high at $2,222 on Wednesday after markets interpreted the latest Federal Reserve meeting as dovish. The moves sparked a pullback in the dollar and US yields, which favoured gold, but the momentum has quickly fizzled out as a deeper dive into the dot-plot graph suggests the Federal Reserve is actually more hawkish than in December.
Federal Reserve dot plot
Source: capital.com, federalreserve.gov
As can be seen in the image above, whilst the median remains at three rate cuts, the March dot plot is more hawkish than the December one. In December, five FOMC members were expecting more than three cuts in 2024, and that was reduced to just one in March. Moreover, there are now four members who expect less than two cuts in 2024, versus three members back in December. So, despite Powell’s apparent desire to start cutting soon, it is evident from the changes in the dot plot graph that there is still a way to go. This realisation could be driving some of the bullishness in the dollar.
The resurgence in the dollar is jeopardizing the short-term direction in XAU/USD but the fundamentals remain supportive of gold buying. With cuts expected at some point this year, and inflation projections being revised upwards, lower real yields are likely to bolster gold in the coming months. Moreover, with ongoing geopolitical tensions and recessionary concerns, there is also a continued appeal for the precious metal as a safe haven.
The technical setup continues to point higher for the path of least resistance, so it doesn’t seem desirable to be a seller right now, at least not in the longer term. The pullback has reset the overbought conditions from the past few days, enabling new buyers to come in at more attractive levels. The short-term support can be found at last week’s low of $2,145. Beyond this level, there is potential for a deeper pullback but the bullish bias should remain intact as long as the price stays above 2,080 over the coming weeks.
Past performance is not a reliable indicator of future results.
There is little on the macroeconomic calendar next week so the dollar will likely continue dominating the momentum. Shifting expectations about future monetary policy will likely remain one of the key drivers of volatility. Jerome Powell’s speech on Friday afternoon could provide a new angle for traders, potentially giving XAU/USD some further momentum.