Gold Price Pulls Back from Record Highs as Fed’s Changed Language Influences Market Sentiment

GOLD price has experienced a significant pullback, dropping to around $2,040.00 during the Asian session after reaching an all-time high of $2,079.76. The precious metal has swiftly corrected due to profit-taking following strong gains driven by the Federal Reserve’s (Fed) altered stance on interest rate guidance after consecutively raising key rates by 25 basis points (bps) to 5.00-5.25%.

The USD Index is attempting to hold onto its immediate support of 101.07, but the downside appears more likely due to various challenges. Concerns regarding US banks have resurfaced as Bloomberg reported that PacWest Bancorp is exploring strategic options, including a possible sale.

Simultaneously, apprehensions over debt ceiling issues are intensifying as US President Joe Biden is unwilling to raise the debt ceiling during negotiations with Republicans at the expense of his spending initiatives.

On the other hand, S&P500 futures have shown some recovery, signaling an improvement in the risk-off market mood. The escalating fears surrounding the US debt ceiling have significantly impacted Treasury yields, with the 10-year US government bond yields dropping to nearly 3.33%.

In the future, US labor market data will be closely monitored. The US Nonfarm Payrolls (NFP) data is expected to be 179K, lower than the previous release of 236K, with the Unemployment Rate remaining steady at 3.5%. Average Hourly Earnings are also anticipated to be stable. Persistent labor cost index data could prompt the Fed to reconsider pausing its rate-hiking cycle as it could exacerbate inflationary pressure.

Gold Technical Analysis:

GOLD price has dropped to around $2,040.00 after hitting a new all-time high at $2,079.76. The precious metal has filled the gap created after the Fed policy on an intraday chart, which is now acting as a support. Additionally, the 50-period Exponential Moving Average (EMA) at $2,038.56 is offering support for Gold bulls. A recovery move above the 20-period EMA would help Gold bulls in reclaiming all-time highs.

The goal for now is likely that Gold will face immediate resistance around the $2,060 level. On the lower side, it has the potential to target an immediate support level of $2,035. Below this, the next support remains around the $2,020 level. So, the idea today is to look for a sell position below the $2,050 level.