Gold Price Outlook Shifts Rosy Post FOMC, XAU/USD Eyeing US GDP Data Next

Gold, XAU/USD, Fed, Jerome Powell, US GDP, Technical Analysis – Talking Points:

  • Gold prices surged in the aftermath of the FOMC monetary policy decision
  • Broadly still-dovish stance undermining Treasury yields and the US Dollar
  • Softer US second-quarter GDP data may offer further XAU/USD momentum

Anti-fiat gold prices climbed over the past 24 hours following Wednesday’s FOMC monetary policy announcement. The central bank left benchmark lending rates and the pace of quantitative easing unchanged, as widely expected. The details of the statement, as well as Chair Jerome Powell’s press conference, depressed the US Dollar and Treasury yields.

When both the latter are falling, it tends to bode well for XAU/USD given that it is a non-yielding asset. There was a kneejerk reaction to the Fed. Markets were initially spooked by the statement as the central bank noted that the economy made progress to its maximum employment and price stability goals. Policymakers noted that they are closer to tapering.

However, the mood quickly reversed course as it soon became clear that the central bank is still quite dovish. Powell said that the labor market is ‘some ways off’ before reaching substantial further progress. He reiterated that inflation is transitory. Treasury yields quickly turned lower as his commentary likely suggested that tapering is still not quite around the corner just yet, opening the door to optimal stock market conditions.

The first estimate of US second-quarter GDP is due over the remaining 24 hours. Annualized growth is expected at 8.5% q/q from 6.4% prior. Atlanta’s Fed GDPNow Q2 real growth estimate has been notably trending lower since April, currently standing at 6.4%. A softer-than-expected outcome could underscore the central bank’s hesitation. If such a result depresses bond yields further, gold could continue benefiting.

Gold Technical Analysis

Gold prices may be readying to extend recent gains after prices recently pierced a near-term falling trendline from earlier this month on the 4-hour chart below. This also follows positive RSI divergence, showing that downside momentum was fading. Extending gains may see prices aim for the July 15th high at 1834. That would also leave XAU/USD back above the 200-period Simple Moving Average.

XAU/USD 4-Hour Chart

Chart Created Using TradingView

— Written by Daniel Dubrovsky, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

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