Gold Price Declines Amid Rising US Dollar and Anticipation of Fed Interest Rate Hike

Gold price (XAU/USD) is dropping towards its critical support of $1,970.00 during the Asian session, impacted by a strong recovery in the US Dollar Index (DXY) amid high expectations that the Federal Reserve (Fed) will increase interest rates by 25 basis points (bps) on Wednesday. A confident break below $1,970.00 could lead to a significant fall in the precious metal’s price, as it has served as major support over the past week.

S&P 500 futures have regained their losses from early Asia and moved into positive territory, reflecting a positive market sentiment. Demand for US government bonds remains robust, with 10-year US Treasury yields dropping to around 3.43%.

The USD Index is anticipated to exhibit strong performance on Monday following the release of the United States ISM Manufacturing PMI (April) data. The consensus predicts an increase to 46.6 from the previous 46.3, marking the sixth consecutive month of contraction if the figure remains below 50.0.

Reports that JP Morgan and PNC are submitting final bids for First Republic Bank in a Federal Deposit Insurance Corporation (FDIC) auction have eased US banking concerns, reducing the appeal for gold prices.

In addition, new orders data, signaling future demand, is expected to expand to 45.5 compared to the previous 44.3. Meanwhile, consumer spending in the US economy appears resilient despite higher interest rates from the Fed. A surprise jump in the Employment Cost Index (Q1) to 1.2% suggests strong labor market conditions and leaves the Fed with no choice but to continue raising interest rates.

GOLD technical analysis shows that the price has been consolidating within a narrow range of $1,971-2,021 over the past week as investors await the Fed’s monetary policy for a decisive move. An upward-sloping trendline from the March 22 low at $1,934.34 is providing support for gold bulls.

The 20-period Exponential Moving Average (EMA) at $1,990.28 is adhering closely to the gold price, signaling a lackluster performance. Concurrently, the Relative Strength Index (RSI) (14) is on the brink of entering the bearish range of 20.00-40.00, which could trigger bearish momentum.