Gold Prices Held Hostage by Fed Expectations

Gold Prices Held Hostage by Fed Expectations



Gold futures have struggled to recover from last week's declines which drove XAU/USD below $1900. After climbing to a nine-month high of $1975.2 last week, the release of strong US economic data and a break of trendline support ended the three-month rally that has been driving the recovery from the October low of $1618.3.

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In response to the robust job data and positive ISM figures, recession fears were overshadowed by prospects of further rate hikes. As the 22% rally from the October lows fizzled out, both technical and fundamental factors contributed to Gold’s decline.

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Although gold and silver are safe-haven assets that are often used as a hedge against inflation, the non-yielding commodities are sensitive to rising interest rates.

After the Federal Reserve announced a softer 25 basis-point rate hike at the FOMC meeting earlier this month (1 Feb), gold prices temporarily surged before peaking at $1975.2. With investors interpreting the slower rate hike as a sign that the Fed could continue to slow down the pace of tightening, the announcement did not catch markets off-guard.