Gold tumbles to March low on hawkish Fed comments

The price of gold hit a new March low on Wednesday after relatively hawkish comments from US Federal Reserve officials weighed on the precious metal and boosted the US dollar. As a result, gold dipped below $1225, a key support level.

The comments from Fed members appeared to mitigate last week’s FOMC statement, which was widely seen as surprisingly dovish due to its significant lowering of expectations for US rate hikes this year. That dovish statement prompted a sharp and immediate sell-off last week in the US dollar along with a corresponding rise in gold.

Hawkish Fed statements generally pressure the price of gold for a couple of reasons. Since gold is a non-interest-bearing asset, rising interest rates increase the cost of gold ownership, thereby leading to a shift away from investment in the precious metal. This prompts a decline in demand and value. In addition, rising US interest rates generally lead to an increase in demand for the dollar. Since gold is denominated in dollars, there exists an inverse correlation between the two. Therefore, a higher dollar typically leads to a lower price for gold.

From a technical perspective, the current slide extends gold’s retreat from the new one-year high slightly above $1280 resistance that was reached less than two weeks ago. As of this writing, this drop has prompted price to reach down and hit a steep uptrend support line extending back towards the lows of mid-January. In addition, price has also dropped down to approach the important 50-day moving average.

Having hit a critical technical juncture, gold could have further to fall if it breaks down below the current support. With any further retreat for the precious metal that prompts such a breakdown below the noted trend line and moving average, further losses could push price back down towards progressively lower support levels at $1190, $1170, and $1140, which also correspond roughly with the key 38%, 50%, and 62% Fibonacci retracement levels of the sharp uptrend from mid-December to mid-March.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

The markets are moving. Stop missing out.

Open an Account