Economy News

XAU/USD remains vulnerable amid upbeat Fed outlook

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  • XAU/USD closes for the third consecutive week in negative territory.
  • Optimistic FOMC monetary policy outlook and rising US Treasury yields weigh on gold.
  • XAU/USD appears to have formed technical support at $1,740, ahead of $1,730.

As a result of the previous week’s decline, gold rebounded and closed in positive territory on Monday and Tuesday. As the US dollar gained strength as a result of the FOMC’s upbeat monetary policy outlook, XAU/USD lost traction after reaching its highest level since Thursday’s sharp drop the previous week. As U.S. Treasury yields rose in the second half of the week, gold prices fell to a multi-week low of $1,737 on Thursday before staging a technical rally and closing near $1,750 on Friday.

XAU/USD

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Last week’s summary
Concerns about the Evergrande crisis escalating into global turmoil led market participants to seek refuge in safe-haven assets at the start of this week. S&P 500 opened with a large bearish gap on Monday morning and lost 1.7%.

During Wednesday’s Asian session, the People’s Bank of China maintained its 1-year and 5-year LPRs at 3.85% and 4.65%, respectively. However, the PBoC also injected around 110 billion Chinese yuan in short-term cash in order to boost market sentiment.

The USD remained defensive on Wednesday, as risk appetite returned to the markets, allowing the XAU/USD to extend its recovery. As a result, the USD was boosted by the FOMC monetary policy announcement in the latter half of the day and gold dropped.

Following the September meeting, the FOMC left the benchmark interest rate and target range for fed funds unchanged at 0% -0.25%, as widely expected. According to the Fed, if progress toward overall employment and inflation targets continues as expected, a moderating in the pace of asset purchases will soon be warranted.

Further, FOMC Chairman Jerome Powell clarified that the statement language intended to set the bar for gradual tapering of bond purchases could be met as soon as the next meeting. Powell added that they plan to end the tapering by the middle of 2022.

Due to the positive outlook, the US dollar index DXY rose to a monthly high and the gold price XAU/USD ended a three-day winning streak.

The impressive rise seen in US Treasury yields weighed heavily on gold on Thursday, pushing XAU/USD to a fresh 5-week low of $1,737.84. Gold closed the week at $1,750 after a technical correction.

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Michelle D. Madsen

Michelle D. Madsen graduated from the University of Westminster and has been deeply involved in the world of finance ever since. She has worked as a Broadcast Journalist hosting various news shows and informative webcasts about the financial markets. Since 2004 she has also been writing for Metanews daily, her attention to detail, and her in-depth knowledge of the financial markets have led her to cover Foreign Exchange and commodities. The world of finance has changed in the last few years with the introduction and rising popularity of cryptocurrencies. She has in no means been left behind, adding this to her bank of intellect and is now also an expert in cryptocurrencies. For the last ten years, Ms. Madsen has been engaged in the financial market. She has notedly written a great number of incredibly informative reviews for the crypto exchange and forex brokers. Her wealth of knowledge has enabled her to become a leading expert in the field. She continues to inform the public writing up-to-date, thorough reviews for the readers of Metanews as she has for the last decade.
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