Gold Price (XAU/USD) Slammed by Fed Chair Powell’s Pessimism

NEW YORK (Dec 15) The US Federal Reserve hiked rates by half-a-percentage point last night to 4.25% -4.50%, in line with market expectations, its highest level in 15 years. While the move was fully expected, Fed chair Powell added a pessimistic tone to proceedings at the press conference. While recognizing the recent downturn in inflation, Powell said that it will take ‘substantially more evidence to have confidence that inflation is on a downward path’. Added to this the earlier Fed dot plot - a chart of each Fed official’s short-term rate expectations – showed rates are projected to rise throughout 2023 to a terminal rate of 5.1% at the end of the year. This terminal rate is 0.5% higher than the Fed’s last projection back in September.

Post-FOMC the US dollar picked up, and US Treasury yields moved higher, although both moves were muted due to a different market view on the path of US rates. While the Fed is looking at a peak rate of 5.1% in December 2023 and the first rate cut in 2024 at the earliest, the market is suggesting otherwise. Using the CME FedWatch tool, financial markets expect a Fed Fund rate of 4.25%-4.50% at the end of 2023, down from a peak of 4.75%-5.0% in late-September.

The price of gold fell sharply post-FOMC, wiping out all of this week’s gains. The precious metal balked at an area of resistance between $1,807/oz. and $1,810/oz. and looks set to test short-term support around $1,766/oz. For gold to resume its move higher it needs to reclaim the 200-day moving average, currently at &1,787/oz. and to make a confirmed break back above overhead resistance.

DailyFX