Gold Prices Held Hostage by Fed Expectations – What Next for XAU？

Gold Talking Points:Gold prices fall into another tight range of support and resistance below $1,900Fed expectations remain the prominent driver of price actionPsychological resistance holds XAU/USD hostage at $1,900.

Gold futures have recovered a portion of recent losses which drove XAU/USD below $1,900. After climbing to a nine-month high of $1975.2 last week, the release of strong US economic data restricted further gains.

In response to the robust job data and positive ISM figures, recession fears were overshadowed by prospects of further rate hikes. As the 22% rally from the October lows fizzled out, both technical and fundamental factors contributed to Golds decline.

Although gold and silver are safe-haven assets that are often used as a hedge against inflation, the non-yielding commodities are sensitive to rising interest rates.

After the Federal Reserve announced a softer 25 basis-point rate hike at the FOMC meeting earlier this month (1 Feb), gold prices temporarily surged before peaking at $1975.2.

As a series of doji candles formed on the four-hour chart, gold prices dropped below prior trendline support (from the October low), falling below $1930.

With the release of NFP‘s and ISM data supporting lower prices, Friday’s move accelerated losses, forcing XAU/USD toward current support at $1880.

On the weekly chart below, a rejection of the upper wick at the current monthly high was accompanied by a sharp pullback and a retest of $1873.2. Simultaneously, the weekly CCI (commodity channel index) eased back from overbought territory suggesting that bulls had run out of steam.