Gold Prices Cool Slightly After Fed’s Dovish Hike Puts $2000 Back in Play

Gold price chart and analysis

• gold prices remain close to their highest levels in one year
• Hopes that there won’t be too many price increases in the future support non-returning companies
• $2,000/oz is still a huge hurdle

Gold prices fell slightly in European trading on Friday although the metal is still close to its one-year highs, and the $2,000/oz region, as this market like all others evaluates this week’s monetary policy decision from the United States Federal Reserve. .

The US central bank raised interest rates again on Wednesday, but significantly eased its “forward guidance.” The financial markets certainly wouldn’t be surprised by more interest rate increases, but hopes that the “final interest rate” might be very close have been raised by the Federal Reserve.

Stable interest rates, or, indeed, the possibility of them falling, is a much better environment for the gold bulls, as the yellow metal of course does not hold any yield. Such assets tend to thrive when yields elsewhere are lower, particularly in the bond market.

Now it seems likely that US interest rates will reach below the 5.7% level that markets had predicted when this month began.

The Fed has indicated that it will not be looking to cut interest rates in 2023, and this may have dampened some of the enthusiasm evident in the gold market after the rally. It should also be noted that inflation remains well above central embargo targets in the US and worldwide. The Bank of England emphasized this point on Thursday by raising its own borrowing costs.

While prices are high, talk of interest rate cuts will always have a whiff of wishful thinking. The central bank’s price control mandates are very clear and strict. However, it appears that the increasing pressures on the banking sector combined with the ongoing conflict in Ukraine will ensure that the haven assets retain a bid. Gold is of course the oldest haven of the lot, and it has already enjoyed an impressive rally since November 2022., which sent prices back to levels not seen since March of the same year.

Technical analysis of gold prices

Chart compiled using TradingView

Prices remain in a wide uptrend channel that has catapulted the market upwards from last November’s lows.

With that said, the rally from the March 8th low of $1804.91 has been very brisk and the crucial psychological level of $2000 an ounce seems likely to get the sellers out. So it is not unreasonable to expect some consolidation towards the end of the week and the month before the bulls consider preparing for a break at the top of the channel. In any case, this is still higher than the current market, at $2045.19, which is a very rare high for the gold market. Keep in mind that $2078 was the peak of 2022.

Recovery support is likely to come at $1913.87, with further minor support above it in the $1965-$1975 range. An early February 1952 dollar peak may also provide a prop.

Retail gold trust

According to IG’s sentiment data, the market remains bullish at current levels, with 57% of its customers net buying. This has fallen significantly in the last day or so, and could also attest to a bit of fatigue in this market, if not necessarily an extreme reversal.

– By David Cottle for DailyFX