Gold Price Wavers Amid Interest Rate Hikes and Economic Concerns; Technical Indicators In Focus

GOLD prices fluctuated within a limited range during Wednesday’s Asian trading session and seem to have settled below a key technical benchmark, the 100-day Simple Moving Average (SMA). Trading just above $1,935, the XAU/USD pair is not far from a three-month low reached the previous week.

The aggressive stance of major central banks in raising interest rates is acting as a significant hindrance to gains in gold prices. The Reserve Bank of Australia and the Bank of Canada, for instance, unexpectedly hiked rates by 25 basis points earlier this month. The European Central Bank followed suit, raising rates to a 22-year high, and indicated more hikes might be necessary to combat inflation. The Bank of England and the Swiss National Bank are also anticipated to increase rates by 25 basis points shortly.

Additionally, speculation regarding further rate hikes by the Federal Reserve is putting downward pressure on the XAU/USD. The Federal Reserve, last week, predicted an escalation in interest rates and indicated that borrowing costs might need to increase by around 50 basis points this year. These expectations were bolstered by robust data from the U.S. housing market, which revealed a 13-month high in Housing Starts in May. Permits for future construction also rose, suggesting the housing market may be recovering from the rapid monetary policy tightening.

Market participants are now focusing on the forthcoming congressional testimony by Federal Reserve Chairman Jerome Powell. His remarks will be closely analyzed for indications regarding the Federal Reserve’s future interest rate policy, which could influence the XAU/USD’s trajectory.

Simultaneously, a prevailing sense of caution, amid concerns of a global economic slowdown, is providing some support to GOLD prices. The delicate market sentiment, especially regarding economic developments in China, is limiting appetite for riskier assets. This is reflected in the equity markets, where there is a noticeable absence of substantial buying activity, leading some investors to seek refuge in gold.

In terms of technical analysis, settling below the 100-day SMA may signal an opportunity for bearish traders, possibly leading to further declines. Should selling continue below the $1,925-$1,924 area, or the monthly low, this would confirm a bearish outlook, rendering the gold price susceptible to a sharper drop toward the $1,900 mark.

The decline might continue further towards the $1,876-$1,875 support level before XAU/USD drops to the crucial 200-day SMA, currently near $1,839.

Conversely, any significant rally above the $1,942 area (100-day SMA) is likely to face resistance and be confined to the $1,962-$1,964 range. The next significant resistance levels are around $1,970-$1,972 followed by $1,983-$1,985. If gold prices manage to maintain momentum beyond these levels, a short squeeze could propel the price beyond the $2,000 threshold and towards the $2,010-$2,012 resistance area.