Gold price edged lower in early Friday trade as the market digests the latest hawkish comments by Fed officials. Indeed, the remarks boosted Treasury yields to a fresh 14-year high; an aspect that placed the precious metal closer to its YTD low.
What’s driving the market?
About three weeks ago, gold price hit its lowest level since the onset of the coronavirus pandemic at $1,615.08. At that point, the precious metal had dropped by over 20% from its year-to-date high of $2,071.23.
Notably, the decline has been fuelled by an ultra-hawkish Fed and subsequent rallying of the US dollar. Even so, traders appeared to have priced in further interest rate hikes by the US central bank in coming months. Based on that assumption, gold price appeared to have found its short-term bottom.
However, the losses recorded on Thursday has traders questioning the steadiness of the support at the aforementioned YTD low. Inflation in the US is yet to peak, as highlighted in the latest CPI figures. As such, Fed officials approve of further rate hikes despite the probable economic pains. Indeed, this is the sentiment reflected in the recent Fed meeting minutes.
On Thursday, Patrick Harker, Philadelphia’s Fed President stated, “We are going to keep raising rates for a while. Given our frankly disappointing lack of progress on curtailing inflation, I expect we weill be well above 4% by the end of the year”.
Similarly, Fed Governor Lisa Cook asserted, “Inflation is too high, it must come down and we will keep at it until the job is done. This likely will require ongoing rate hikes and then keeping policy restrictive for some time”.
The Fed officials’ hawkish comments boosted Treasury yields to a fresh 14-year high of 4.24% on Thursday. High yields increase the opportunity cost of holding the non-yielding bullion. Analysts expect the Fed to increase rates by 75 basis points in October and may approve a similar hike in its December meeting.
Gold price prediction
On Thursday, gold price inched closer to its YTD low by hitting an intraday low of 1,622.19. As shown on its daily chart, it remains below the 25 and 50-day EMAs. Based on these technical indicators, coupled with the fundamentals, I expect further losses in the ensuing sessions.
In particular, the range between 1,655 and 1,615 will be worth watching. Below the range’s lower border, the bears will have an opportunity to hit a fresh YTD low at the psychological level of 1,600.