Gold Price Analysis: XAU/USD pressured to $1810 area as buck, US yields break higher post-hawkish Fed

• Gold has pulled back to around $1810 from Wednesday’s highs above $1850 as markets price in a more hawkish Fed.
• Traders should watch for a break of a recent upwards trend channel that could trigger a drop towards the $1780s.

After pulling back sharply on Wednesday from the $1850 highs to a sub-$1820 close amid hawkish post-Fed meeting vibes, spot gold (XAU/USD) prices have continued to decline, albeit at a steadier pace on Thursday. XAU/USD is currently trading close to the $1810 level, down a further 0.5% and now down about 2.3% from Tuesday’s highs above $1850. Gold was pressured by the DXY broking out to fresh 19-month highs above the 97.00 level, and as major US front-end yields (2s, 5s) broke out to fresh cycle highs as markets moved to price in more aggressive Fed hikes.

The Fed’s monetary policy statement, which indicated a likely March hike, and decision to hold rates was in line with expectations and didn’t move markets, but Fed Chair Jerome Powell’s press conference was deemed hawkish. Traders noted that Powell did not rule out a significantly faster pace of hikes than currently indicated in the dotplot and did not rule out a 50bps hike in March. Powell also said that, if the Fed had been releasing new forecasts at Wednesday’s meeting, he would have upped his inflation outlook.

As a result, the implied yield on the three-month eurodollar future for December 2022 (a proxy for market expectations for where the Fed funds rate will be) has jumped more than 15bps to close not far below 1.45% from previously under 1.30%. In other words, markets are now pricing five rate hikes in 2022. This shift in pricing seems inline with updated Fed calls from major banks, including Nomura, who see a 50bps hike in March followed by a further four before the end of the year.

Recent breakouts in short-end yields and the DXY suggest a shift in momentum that may see further dollar and yield gains. This may continue to pressure spot gold prices; the safe-haven metal has been in a bullish uptrend in recent weeks and is now probing the lower bounds in the. A break below the $1800 area, which would also mean a break back below the 200 and 50-day moving averages, both of which sit just above $1800, would likely trigger technical selling that might push XAU/USD all the way back to annual lows in the $1780s area. Ahead on Thursday, US data worth watching include the first estimate of Q4 GDP growth and December Durable Goods Orders figures, both out at 1330GMT, as well as some more housing data at 1500GMT. Geopolitics is also worth watching as this has arguably been giving gold a lift in recent weeks.