- Gold extends gains as the market continues to trade the central banks and lower real yield environment.
- A break of $1,180 opens the risk to $1,850 for the weeks ahead.
The price of gold is stronger again on Thursday which highlights the asymmetry present in precious metal markets to the hawkish Federal Reserve outlook. At the time of writing, XAU/USD is trading 1.21% higher on the day and has rallied from a low of $1,775.60 to a high of $1,799.46.
The Federal Reserve delivered on the expected doubling of the taper pace and said Wednesday it will begin reducing its asset purchases by $30 billion per month starting in January, up from the current $15 billion pace, amid rising inflation and continued recovery in employment. The central bank’s Federal Open Market Committee said after its two-day meeting it would cut monthly Treasury securities purchases by $20 billion and agency mortgage-backed securities acquisitions by $10 billion per month.
Meanwhile, Fed policymakers lifted their projections for core inflation, expecting to finish this year at 5.3%, up sharply from the 4.2% average forecast in September. Next year, inflation is expected to slow to 2.6%, but that was higher than the 2.2% seen three months ago.
However, the dot plot was far more hawkish than the market had expected and above where it was priced. The dot plot now shows a 75bp increase in 2022, above the 50bp consensus, and the Chairman also made it clear that officials are ready to start raising rates well before the labor market returns to its pre-COVID state.
Nonetheless, the stock market rallied. ‘The idea that a gradual tightening in policy can put the economy on a smooth glide-path back to growth and inflation equilibrium is implausible, but after 20 years of ‘buy the dip’ the equity market is trained to look on the bright side of life,” analysts at Societe Generale argued.
This sank the US dollar which has been unable to crack the 97 figure as measured by the DXY index. Real yields falling also culminated in gold prices rising. ”We continue to see the balance of risks tilted towards the upside for the near-term precious metals outlook as positioning that has skewed mainly to the short side in recent weeks is unwound somewhat,” analysts at TD Securities said.
”With that said, while marginal CTA selling is underway, if the yellow metal can hold the post-FOMC rally north of the $1,787/oz range, systematic funds are likely to target net long positions once again.”
Gold technical analysis
The price would be expected to continue to $1,810 but a restest of the prior resistance near $1,790 could be on the cards imminantly. A break of $1,180 opens the risk to $1,850 for the weeks ahead.
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