Gold Price Forecast: XAU/USD erases Wednesday’s gains, plunges below $1920 post BoE, ECB decisions

• Gold plunges across the board, even though US Treasury yields are dropping.
• The US Dollar recovered some ground, bolstered by the Euro and Pound Sterling fall.
• On Wednesday, the US Federal Reserve hiked rates by 25 bps and signaled it is about to end its cycle.
• Following the US central bank lead, the BoE and the ECB lifted rates by 50 bps.

Gold price retreats after hitting a nine-month high at $1959.74. However, it is below the $1950 barrier after the US Federal Reserve (Fed) hiked rates by 25 bps on Wednesday. Data revealed in the United States (US) economic docket showed the labor market remains resilient. In addition, two other central banks, namely the Bank of England (BoE) and the European Central Bank (ECB), added to the chorus of tightening policy. At the time of writing, the XAU/USD exchanges hands at around $1920, below its opening price.

US Federal Reserve lifted rates but sounded dovish

Walk Street is set to extend its Wednesday gains after Jerome Powell, and Co. lifted rates. He said “that ongoing increases in the target range will be appropriate” as the Federal Reserve battles to curb stubbornly high inflation and emphasized the Fed’s commitment to return inflation to “2% over time.” Powell said the “disinflation process has started,” giving the green light to risk-perceived assets, extending its rally as Powell spoke.

US Dollar benefits from EUR and GBP fall, a headwind for Gold

In the meantime, the  US Dollar Index (DXY), a measure of the buck’s value against a basket of currencies, is trimming some of its losses, up 0.44%, at 101.61, bolstered by the market’s reaction to the BoE’s and ECB’s decisions. Meanwhile, global bond yields are plummeting, with the US 10-year benchmark note rate down six bps, at 3.354%. That said, Gold failed to gain traction, and continues to tumble even more after hitting $1944 at around 14:25 GMT, extending its losses towards the $1920s area.

Unemployment claims in the United States dropped

Data-wise, the US Department of Labor (DoL) revealed that Initial Jobless Claims for the week ending on January 28 fell to 183K, three thousand below the last week’s 186K and well below the 200K estimated by street analysts, showing the labor market resilience. Today’s data added to Wednesday’s JOLTs report that showed vacancies improved, while an ISM report on Wednesday stated that manufacturers “are not substantially” reducing their personnel.

Central Banks in Europe tightened monetary conditions

On Thursday, the Bank of England decided to raise rates by 50 bps to 4%, marking the tenth time since the BoE hiked on December 2021. The BoE Governor Andrew Bailey said that since the November meeting, the BoE has seen the “first signs that inflation has turned the corner.” He added that “it’s too soon to declare victory just yet, inflationary pressures are still there.” Meanwhile, the European Central Bank added to the list of central banks lifting rates to 0.50%, leaving the deposit rate at 2.50%, and signaled that a 50 bps hike in March is possible.

Gold Technical Analysis

Technically speaking, XAU/USD had erased Wednesday’s gains, forming a bearish engulfing candle pattern, which, if confirmed, could exacerbate downward price action. The XAU/USD bullish scenario would remain above $1900; otherwise, the yellow metal could extend its losses. A breach of $1900 will expose the January 18 low of 1896.74, followed by the June 13 high-turned-support at $1879.45, ahead of the $1850 psychological support.