Gold shows resilience as US Fed’s hawkish surprise sparks market volatility

US Fed as anticipated had kept their rates on hold which was already discounted by the market but the hawkish tone assuring participants that rates will remain elevated not only till March 2024 where everyone was expecting but well until September 2024 which dented the sentiments and we saw equity markets and bullions witnessing sell off with US dollar and Treasury yields hitting higher. 

The largest shockwave was that the Federal Reserve still is looking for one more rate hike this year and now intends to only implement two rate cuts next year rather than four. This means the American public and businesses can expect to see the cost of borrowing remain extremely elevated above 5% for the entire upcoming year. This was unexpected, and it took a day for it to set in, as was seen in the financial markets.

Gold shows resilience as US Fed

The 10-year US bond is now yielding 4.49%, higher than Oct 2007. Looking at the carnage in equity markets and silver, gold has remained resilient. We saw corrections in gold but not compared to equities or other base metals. Despite hawkish rhetoric, gold is holding up well as the likelihood that the economy may collapse increases. The majority of the price increase for gold has already been factored in, but eventually adverse economic news will cause gold prices to rise. There is seemingly little institutional interest in gold at present with physical gold investment also lackluster. The Fed is now targeting above 5% rates over 18 months which will be enough to keep the $2000 lid on gold prices for now. 

On the daily candlestick pattern, gold had made ‘Bearish Belt Hold’ candlestick pattern which is bearish in nature. So the resistance is established which is high of bearish belt hold candle coming around 59,300. Clearly for gold in order to favour bulls, it needs to breach the level of 59,300. On the downside, 58,000 still continues to remain rock solid support as COMEX has $1900 support. Since Mid-August, gold is consolidating in range of 58,400 – 59,600 and continues to remain so. So any fresh direction will only come if gold manages to breach the range on the upside or downside. Right now, gold is in a neutral trend with no clear direction. 

We would wait for gold to come around the zone of 58,500 where one can go long with stoploss of 58,000 and expected target of 59,300. Similarly if gold manages to come around 59,300 – 59,500 then one can go short with stoploss of 59,800 and expected target of 58,600. Since gold is trading in range, one can take position whenever gold comes into the higher or lower end of the range.