Gold price has continued to trade steady above the psychologically crucial zone of $2,000 per ounce ahead of the Fed interest rate decision. As investors await further cues from that economic event, Treasury yields and the US dollar edged lower; boosting the precious metal.
Fed interest rate decision
The Fed meeting and subsequent interest rate decision has been one of the major drivers in financial markets. While the markets appear to have priced in a rate increase of 25 basis points in the May meeting, the focus is on the bank’s guidance for coming months.
On the one hand, there have been persistent concerns that further rate hikes may yield a recession. Indeed, expectations that this aspect may push the Fed to pause on these increases, coupled with gold’s status as a safe haven, has offered support to the commodity in recent weeks. Even so, officials have expressed hesitance to consider rate cuts amid high inflation.
Ahead of the Fed’s decision, Treasury yields edged lower; lowering the opportunity cost of holding the non-yielding bullion. The benchmark 10-year yields dropped to a one-week low at 3.39%. Subsequently, it pushed the dollar index lower to $101.57 while boosting gold price.
Gold price prediction
Gold price has been range-bound for about two weeks after pulling back from its one-year high of 2,050.06. During this period, the precious metal has largely been trading between 1,977.87 and 2,015.41.
On Tuesday, it rose above the range’s upper border although it continues to hover around it. As at the time of writing, it was at 2,013.81 after hitting an intraday high of 2,020.22 earlier on Wednesday.
A look at its daily chart shows gold price still trading above the 25 and 50-day EMAs. In fact, for as long as the asset remains above the crucial support zone of 1,950, the bulls will still be in control.
In the immediate term, I expect it to continue hovering around 2,015 while finding resistance at 2,022.15 ahead of the Fed interest rate decision.
In reaction to the aforementioned economic event, a dovish tone may give the bulls an opportunity to retest April’s high of 2,050.06. On the flip side, signs that the Fed may approve additional rate hikes in coming months may have the bears eyeing the support level at 1,987.50, which is along the 25-day EMA.