Gold Patiently Awaits the Fed’s Next Move – How Will XAU/USD Respond?

FOMC Economics of projections and Fed rate decision to guide gold’s next move

Gold prices have steadied after yesterday’s decline, pushing XAU/USD into a tight range around $1,946. With fears around the banking crisis beginning to ease, market participants appear to be regaining confidence. This has been illustrated by a steep drop in the VIX index, which measures the volatility of the S&P 500 and has gained a reputation as ‘fear gauge’.

At the onset of a potential banking crisis, the VIX started to increase at a rapid pace which was exacerbated when Credit Suisse appeared to be in financial distress. However, after rising by approximately 37%, the VIX fell sharply, shedding around 18% of those gains.

Because gold holds a reputation as a hedge against inflation and is sensitive to growth prospects, its safe-haven appeal assisted in driving prices higher. However, it was the expectations surrounding the Federal Reserve’s next move that enabled a break of $2,000.

With the FOMC economic projections and the Fed’s rate hike on today’s economic docket, markets are now pricing in a 25 basis-point rate hike, half of what was anticipated a two weeks ago.

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Gold (XAU/USD) Technical Analysis

After soaring to a new high of $2,014.9 last week, gold prices started to fall, erasing a small portion of recent gains. With recession fears subtly subsiding, XAU has found temporary support around $1,946. As key technical levels continue to provide support and resistance for price action, there are two scenarios that can play out.

Gold Price Chart (Daily)

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If Fed Chairman Powell hikes rates by 50 basis-points (above expectation) and he suggests that the path for interest rates remain unchanged, then it is possible for gold to experience a sharper pullback towards $1,900.

On the other hand, if the Fed pauses or sticks to a 25 bps (0.25%) hike and hints at a pivot, gold could resume its bullish move, opening the door for $2,000.

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