(Kitco News) – Hawkish comments from Federal Reserve officials are strengthening the U.S. dollar and capping gold's potential price gains in the near term, according to Arslan Ali, currency and commodity analyst at FX Empire.
“Gold prices (XAU/USD) continued their downward trend for the second consecutive day on Wednesday, hitting their lowest point in over a week during the Asian session,” Ali said. “Despite this decline, the metal avoided significant selling pressure.”
Ali wrote that recent hawkish comments from Federal Reserve officials have served to boost Treasury yields and the dollar and put pressure on gold prices.
“Fed Governor Michelle Bowman expressed a readiness to raise borrowing costs if inflation progress stalls, while Fed Governor Lisa Cook suggested that rate cuts might be appropriate eventually but emphasized the need for caution if inflation expectations rise,” he noted. “The persistent strength in the US economy supports this outlook, driving US Treasury yields higher and capping gold’s potential gains.”
Ali said that weaker consumer and producer prices for May are keeping a September rate cut on the table despite the Fedspeak. “Additionally, geopolitical tensions in the Middle East and the ongoing Russia-Ukraine conflict lend some support to gold as a safe-haven asset,” he wrote.
Markets are now turning their attention to final Q1 GDP on Thursday and the Personal Consumption Expenditures (PCE) Price Index on Friday “to provide clearer signals on the Fed’s future policy decisions and their impact on the US Dollar and gold prices,” he said.
In the near term, Ali said that the Federal Reserve’s hawkish stance will likely pressure the spot gold price. “Immediate resistance levels at $2329.20 and $2337.78 could limit upward movement, while breaking below $2310 might trigger significant selling,” he wrote.
“The 4-hour chart indicates that the pivot point, set at $2320.06, is a crucial level for determining market direction,” Ali said. “If the price breaks above this pivot, immediate resistance levels are found at $2329.20, followed by $2337.78, and $2347.64. These levels indicate potential upward targets.”
On the downside, he said that initial support will be found at $2309.92. “A drop below this level could lead to further declines, targeting support at $2299.06 and $2287.04,” he wrote. “This makes $2310 a critical level; holding above it maintains a bullish outlook, while breaking below it may drive a sharp selling trend.”
Ali also referred to a few technical indicators which validate the significance of those levels. “The 50-day Exponential Moving Average (EMA) is currently at $2329.15, while the 200-day EMA stands at $2331.56. These EMAs suggest resistance levels close to the current price, adding pressure on the upward movement,” he wrote. “The Relative Strength Index (RSI) is at 42, indicating a neutral to slightly bearish sentiment.”
“In conclusion, the overall outlook for gold remains bullish above the $2310 mark.”
Spot gold broke through the $2,300 level just before the North American market open at 9:30 am EDT, and it has been oscillating right around that level since, last trading at $2,299.25 for a loss of 0.87% on the session.
