Gold Price Forecast: How The Hawkish Federal Reserve Could Push XAU/USD Further South
As traders wait for additional signs to extend the United States' inflation-inflicted downward trend on Wednesday
As traders wait for additional signs to extend the United States’ inflation-inflicted downward trend on Wednesday morning, the GOLD price (XAU/USD) prints moderate losses around the mid-$1,800s, fading the comeback from a 1.5-month low. However, the XAU/USD bears still have reason to be optimistic in the lead-up to the US Retail Sales due to the Federal Reserve’s hawkish comments and technical breakdown.
US Inflation Rate Declines
The Consumer Price Index (CPI) in the United States increased by 6.4% year over year (YoY), which was more than expected but slower than the previous reading of 6.5%. Importantly, the Consumer Price Index excluding Food and Energy (Core CPI) increased 5.6% YoY, above both market expectations of 5.5% and previous estimates of 5.7%. As a result of the report, the US dollar dropped to a new intraday low before the Fed’s negotiations boosted US Treasury bond yields and the US dollar, which put downward pressure on the price of GOLD .
Conservatives on the Federal Reserve Board still have the upper hand.
Even though US inflation fell short of “positive surprise” expectations, the majority of Fed officials favored additional rate hikes. That same factor also boosted US Treasury bond yields and the US Dollar. However, Lorie Logan, president of the Dallas Fed, has warned that policymakers should be ready to keep raising interest rates for longer than they had anticipated. John Williams, president of the New York Federal Reserve, echoed this sentiment, saying that the task of reining down excessive inflation is far from complete.
In addition, Patrick Harker, president of the Federal Reserve Bank of Philadelphia, hinted that the Fed is not yet through raising rates.
As US Treasury bond yields rise, gold’s value declines.
Fed hawkish comments led to a rise in US Treasury bond yields despite lackluster inflation data, and a subsequent rebound in demand for the US dollar after a brief pause.
The yield on 10-year US Treasuries is fluctuating between 3.75% and 3.78%, up 3 basis points (bps) from its recent six-week high, while the yield on 2-year bonds has surged to 4.62%, its all-time high since early November 2022. However, the US Dollar Index (DXY) recovered from a weekly low to close near 103.25, showing gains for the day. Despite the generally positive performance of Asian and European markets, Wall Street ended with a mixed bag.
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