The Federal Open Market Committee (FOMC) reported by the U.S Fed (Federal Reserve) yesterday, sent Gold bearish because of indications that the Fed may raise interest rates at a much faster pace than assumed. When the news was announced, Gold fell by over 2.50% which represented the biggest drop in five months, carving through its 200-day moving average at USD1840.00, highlighting the extent of speculative long positioning in the market. It also highlighted gold’s sensitivity to a higher US dollar and US rates. The crash further deepened causing Gold to trade by $1,800, a milestone it just crossed last month.
The Fed took a surprisingly aggressive tone as it handed down the decision yesterday. Out of 18 Fed officials, 11 forecast at least two quarter-point interest rate increases for 2023 which is a sign that the central bank has begun asset tapering discussions.
Gold has crashed by over $130 since the beginning of this month after hitting a high of $1,916, which has not been touched since January 2021. The commodity is experiencing a similar crash that happened earlier in the year when it crashed by over $280 in January from a high of $1,960 to bottom out at $1,678.
Gold is known to move inversely with the dollar index so it should come as no surprise that the commodity took a nosedive when the dollar index witnessed its strongest single-day gain in 15 months.
Gold’s next critical support is the 100-day moving average at USD1797.50 which it is currently trading around. A daily close below there will signal a deeper correction is in the prospect that would initially target USD1760.00 an ounce. Gold is currently down 4.15%, trading at $1,782.30.
OANDA senior market analyst, Jeffrey Halley stated, “Gold was crushed overnight by a more hawkish Fed. It has staged a modest recovery in Asia, but the rally looks more like speculative dip buying and fast money short-covering than a vote of confidence in the yellow metal.”
Investors are now waiting for policy decisions from the Swiss National Bank and Norges Bank later in the day and the Bank of Japan’s decision on Friday.
Other precious metals are suffering a similar fate as Gold. Silver is currently down 5.28%, trading at $26.34, Platinum is currently down 4.55%, trading at 1,090.95 and Palladium is currently down 5.30%, trading at $2,688.75, as of the time of writing this report.
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