Gold Price Consolidates Following Fed’s Hawkish Shift

Gold price are trading higher today after failing to follow-through to the downside following Friday’s sell-off. Sellers came in ready to pressure prices, but when buyers successfully defended last week’s low at $1761.20, shorts covered and the market turned positive for the session.

Gold Price Following Fed’s Hawkish Shift

Helping to boost gold price were an overnight drop in Treasury yields and a pause in the U.S. Dollar’s rally. The gold price action suggests that last week’s sell-off may have been overdone and that the market may have to consolidate before making its next major move.

Prices plunged last week following the Federal Reserve’s surprise hawkish turn. Gold plunged more than 6% last week after central bankers signaled tapering of its asset purchase program and brought forward projections for the first post-pandemic interest rate increases into 2023.

The 10-year U.S. Treasury yield fell to around 1.43% on Monday morning, its lowest point since early March. Safe-haven bond buying has driven yields lower since last Wednesday after the hawkish Federal Reserve’s latest policy update spike yields higher.

The dollar dipped on Monday against major currencies, but broadly held most of the previous week’s gains after the Fed’s surprise hawkish tilt. The dollar index lost momentum after a leap of 1.9% last week – the most since March 2020 – as the U.S. Federal Reserve signaled a sooner-than-expected end to its ultra-easy monetary policy.

Despite today’s early strength, gains are expected to be capped because of the Fed’s hawkish shift. Volatility in the Treasury market and the U.S. Dollar could translate into choppy, two-sided price action I gold throughout the week.

Weakness in the stock market could drive traders into Treasurys which would pressure yields. Lower yields could encourage some short-covering in gold. Last week’s sell-off in gold was primarily driven by long liquidation. Therefore, the market may have to rally in order to attract new short-sellers.

Today, St. Louis Fed President James Bullard is set to speak along with Dallas Fed President Robert Kaplan, on an Official Monetary and Financial Institutions Forum panel at 14:00 GMT.

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