Gold turned quite bullish during February and early March, as geopolitical trouble turned the sentiment negative for risk assets, which benefits safe havens such as Gold. XAU prices surged above $2,000 but buyers ran into strong resistance at $2,070 which was the all-time high from back in 2020. That resistance rejected Gold, which turned bearish and yesterday we saw it fall by more than 2% to a near three-month low, as increased prospects of faster rate hikes by the FED have been lifting U.S. Treasury yields and the USD.

Although, the way Gold has been behaving this year has surprised many, particularly as it has been ignoring the risk-on/risk-off sentiment in the marketplace most of the time. The conflict in Ukraine hasn’t been helping it much since early March, which is strange, or perhaps Gold investors know that this conflict won’t be a world changer.

Gold Traders Remain Cautious of the FED

But on the other hand, there is pressure on Gold prices with the stronger USD and Treasury yields amidst fears that the FED might turn even hawkish later this week. The FED seems determined to deliver a series of aggressive interest rate hikes this year, to fight surging inflation and high labor costs. Gold is usually considered a hedge against inflation, but rate hikes will increase the opportunity cost of holding non-yielding bullion.

Besides that, China’s economic activity in their factory data showed a deep contraction last month, which is also pulling the metals market down. But, lockdowns won’t last forever in China. So, Gold is having a pull-back ahead of FED meeting but inflation is not transitory and if inflation remains high, then Gold and Silver will move higher with it in the long term.

Gold Daily Chart – The Decline Stalls at the 200 SMA

The stochastic indicator is well oversold

At the moment, the decline in Gold has stopped at the 200 SMA (purple) on the daily chart, which used to act as mild support before. Now let’s see if there will be a jump from here since the stochastic indicator is oversold, showing that the bearish move is overdone for the time being.

Gold XAU Live Chart

[[XAU-graph]]