Gold prices show interest in BoE and ECB after FOMC triggers hawkish unwinding
Gold, XAU / USD, FOMC, Yield Curve, Bank of England, ECB – Talking Points
- Gold prices rose as the initially hawkish post-FOMC backlash faded
- ECB and BoE policies focus as traders monitor global bond yields
- Technical the range continues to cap the rise in gold around 1780-1790
Gold prices are on the rise throughout the Asia-Pacific session after an overnight surge following the Federal Reserve’s rate decision. Gold initially saw a sharp decline in reaction to the updated summary of the FOMC economic projections, which showed a more aggressive dot plot – the expected rate hike path through 2024 – and the outlook for gold. high inflation. This pushed returns up along the curve, but short-term 2- and 5-year yields outperformed longer-term ones.
A flattening of the yield curve can be seen as a sign that economic growth is expected to slow. But investor perspectives on central bank policy also play a role. The yield curve likely flattened overnight due to the initial Hawkish interpretation given by the FOMC statement and the SEP update. Indeed, at first glance, this was certainly a hawkish statement, with an accelerated rate of reduction in addition to the aforementioned factors. However, that initial reaction faded and markets returned to a risk-taking stance shortly after Fed Chairman Jerome Powell stepped onto the podium.
Bullion prices continued to cut losses and moved into positive territory thanks to last night’s post-FOMC action as markets unwound this initial hawkish trend. This positive price move is likely due to gold’s tendency to outperform in low rate environments. The yellow metal is also heavily influenced by the strength of the US dollar. As the greenback is more sensitive to short-term treasury yields, the steepening of the curve after the FOMC undermined the strength of the dollar, which in turn benefited the bullion.
Rates remain historically low around the world, so it stands to reason that gold remains relatively attractive to investors. That said, the European Central Bank and Bank of England interest rate decisions are intersecting tonight. While they don’t have as much influence over the yellow metal as Treasuries, European bond yields and their UK Gilt counterparts still have the ability to inspire price movements. So a relatively hawkish surprise from the ECB or the BoE could reduce the strength of gold.
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XAU / USD technical forecast
Gold extends its gains from the previous day, but prices remain contained below the upper range in place in recent weeks. The bulls struggled to break through a resistance zone between 1780 and 1790 and may continue to do so. In addition, the decline in the 20-day simple moving average (SMA) is approaching prices. This can add extra weight to the price action.
XAU / USD daily chart
Graphic created with TradingView
— Written by Thomas Westwater, Analyst for DailyFX.com
Contact Thomas, use the comments section below or @FxWestwateron Twitter