Gold – XAU/USD Analysis – June 17, 2021

Hawkish FOMC Triggers Sell-off in Gold

Gold prices were closed at $1819.70 after placing a high of $1865.25 and a low of $1805.05. Gold extended its losses for the 4th consecutive session on Wednesday and reached its lowest level since 6th May on the back of a strong pullback in the U.S. dollar. The U.S. Dollar Index that measures the greenback value against the basket of six major currencies jumped higher on Wednesday and reached its highest level since 5th May at $91.43. On the other hand, the U.S. Treasury Yield on a 10-year note also reached 1.59% after the Federal Reserve issued its policy decision.

Gold prices fell more than 1% on Wednesday after the U.S. Federal Reserve officials put forward expectations for the first post-pandemic interest rate hike into 2023. In a statement released after the monetary policy meeting, the officials pledged to keep the policy supportive for now and encouraged an ongoing recovery in the jobs sector. In the statement, 11 out of 18 Fed officials also predicted at least a two-quarter points increase in the interest rate for 2023.

However, the Federal Reserve held its benchmark short-term interest rate near zero and reiterated that it would continue its $120 billion bond purchases each month to fuel the economic recovery. After this announcement, the U.S. dollar and Treasury yields jumped higher on the day. They weighed heavily on the yellow metal as higher yields raise the opportunity cost of holding non-yielding bullion.

On the data front, at 17:30 GMT, the Building Permits from May dropped to 1.68M against the expected 1.73M and weighed on the U.S. dollar that limited the decline in the yellow metal. The Housing Starts also declined to 1.57M against the forecasted 1.64M and weighed on the U.S. dollar and further caped losses in gold prices. The Import Prices rose to 1.1% against the projected 0.8% and supported the U.S. dollar that added extra downward pressure on bullion.

After concluding the two-day meeting on Wednesday, the Federal Reserve signaled higher inflation expectations in 2021 along with an earlier timeframe for the interest rate hikes. The officials at the central bank hoped that there could be two interest rate hikes in 2023, while the FOMC kept its benchmark interest rate close to zero on Wednesday.

The Chairman of the U.S. central bank said that he was monitoring the economic data and has not decided to end the bond purchases. Powell said that Fed would provide advance notice regarding a decision about tapering; however, the timing of this decision was dependent on the progress of economic recovery. About inflation, the Federal Reserve Chairman said that inflation could run hotter than the central bank's expectations as the reopening continued, hiring difficulties, and a large shift in demand and supply constraints.

The comments from Powell also added strength to the already rising U.S. dollar, which happened to have a negative impression on the bullion. They dragged it to its lowest since the early May level and extended its bearish streak for the 4th consecutive session on Wednesday.

Gold Intraday Technical Level

Support Resistance

1794.75 1854.95

1769.80 1890.20

1734.55 1915.15

Pivot Point: 1830.00

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Gold - XAU/USD - Technical Outlook**

Gold is trading with a strong bearish sentiment at a 1,814 level, disrupting the double bottom support level of 1,843. On the 4-hour timeframe, the precious metal gold has closed a strong bearish engulfing candle that's suggesting odds of a bearish trend continuation. At the moment, gold's immediate support stays at a 1,807 level that's being extended by a double bottom pattern on the four hourly timeframes. Below this, gold's bearish movement remain exposed until 1,777 level. All the best!