Gold Price Remains Below $2,400 Amidst Fed's Hawkish Stance and Geopolitical Tensions
Fed's Stance and Market Reaction
In Wednesday's European session, the price of gold (XAU/USD) struggled to surpass the $2,400 mark, remaining below the recent all-time highs around $2,430. This reluctance comes as Federal Reserve (Fed) Chair Jerome Powell emphasized the continuation of a restrictive policy framework for an extended period. Powell and his colleagues appear inclined to maintain higher interest rates for longer due to persistent inflation and robust labor demand.
The prospect of prolonged high interest rates is favorable for the US Dollar (USD) and US bond yields, with 10-year US Treasury yields hovering near a five-month high of approximately 4.70%. The US Dollar Index (DXY), which measures the USD against six major currencies, has stabilized after reaching a five-month high around 106.40.
Geopolitical Developments
Meanwhile, tensions in the Middle East continue to provide support for gold prices. Israel is preparing to retaliate against Iran following an attack, although US President Joe Biden has indicated that the US will not support Israel's counterattack. Treasury Secretary Janet Yellen announced the intention to impose new sanctions on Iran in response to the attack, potentially impacting Iran's oil exports.
Market Analysis and Outlook
Gold remains below the critical resistance level of $2,400, consolidating amidst a hawkish interest rate outlook from the Fed and escalating tensions in the Middle East. Powell's remarks underscored the need for a sustained restrictive monetary policy framework to address inflation concerns.
Recent data, including the March Consumer Price Index (CPI) and robust Retail Sales figures, have heightened uncertainties about the inflation outlook. Geopolitical tensions in the Middle East further enhance the appeal of gold as a safe-haven asset.
Technical Analysis
While momentum oscillators are cooling down from extreme overbought levels, broader demand for gold remains intact. The Relative Strength Index (RSI) on the daily chart has slightly dropped from its peak but remains within the bullish range.
Key support levels for gold include the April 5 low near $2,268 and the March 21 high at $2,223. These levels will likely serve as significant support areas amidst ongoing market volatility and geopolitical uncertainties.
