Gold price (XAU/USD) dropped to 1-week lows ahead of the FOMC decision, as then sentiment of the day leaned towards a demand for the greenback. Several factors favoured a slight uptick in USD strength:
A rise in 10-year bond yields by as much as 0.78% on the day.
Expectations that the Fed could hint at early tapering.
Gold price found itself pressurized by rising bond yields, as the US 10-year Treasury Note added 0.78% to yesterday’s gain of more than 3.2%. Rising bond yields typically do not favour the non-yielding metal.
Traders are watching to see if the Fed mentions anything about tapering, given the robust performance of the US economy in the first quarter. The Bank of Canada fired the first tapering salvo in the G-10 countries last Wednesday, and it would be interesting to see if the BoC’s peer down south would follow suit. Hawkish signals would see the XAU/USD pair feel the heat, allowing gold prices to end lower for the fourth trading day out of five.
Losses on the XAU/USD on the day have been limited by a robust bounce on the $1763 price support, as COVID-19 jitters from India continue to remind the investing world that the pandemic is still very much around. Some repositioning of positions is also seen to have allowed gold price to pare some of today’s earlier losses.
Technical Levels to Watch
The active daily candle has bounced off the 1763.30 support level, which has so far held for the last 9 trading days. However, this support remains at risk, especially if the FOMC delivers a USD-positive outcome. A breakdown of this support opens the door for bears to target the 1741.01 support level. Additional targets to the south lie at 1719.13 and just below the 1700 psychological support level.
On the other hand, 1789.49 remains the immediate target to the north if bulls can extend the momentum from the bounce, especially if the FOMC dithers on early tapering of its QE program. Above this level, we need to see a break of the 1800 psychological resistance to form a new higher high that transcends the cluster of highs of 21-23 April. This move would also provide for a potential opportunity for bulls to advance gold prices towards 1815.20.