Gold Price Analysis: XAU/USD fails again to break above 50DMA as Fed meeting eyed

• Spot gold prices failed to break above their 50DMA at $1,793 again on Monday.
• The precious metal is back to trading within recent ranges as this week’s Fed meeting is eyed.

Spot gold (XAU/USD) prices are a touch higher at the start of the week, but have once again failed to break to the north of the 50-day moving average, which currently resides at $1,793. Spot prices moved above $1,790 and came within a whisker of testing the level earlier in the session, but have since ebbed lower again to trade in the mid-$1,780s. At current levels, spot gold is about 0.25% higher on the day, aided by a drop in long-term US government bond yields which has helped to shield gold against a modest strengthening of the US dollar.

Spot gold prices have spent the whole of December unable to rally to the north of the 50DMA and Monday’s failure is not too surprising given the proximity of key central bank events later in the week. The most important of these for spot gold is, of course, the FOMC meeting on Wednesday, where the Fed is expected to announce a doubling in the pace of its QE taper to $30B per month from the current $15B per month. Of most interest to markets will be the tweaks to the language of the statement (the word transitory is set to be dropped), the Fed’s new dot plot and the updated economic forecasts. The dot plot is likely to show as many as two forecasts are expected by Fed members in 2022.

With the Fed likely to lean hawkish, most strategists suspect that the dollar, as well as short-end and real yields, can expect to remain well supported this week. This is likely not a good recipe for gold and the bears will be eyeing a move lower to test recent lows in the $1,770 area. In wake of last Friday’s hot US Consumer Price Inflation report, this Tuesday’s Producer Price Inflation report is likely to re-emphasise the uncomfortable inflationary backdrop for the Fed the day before they announce policy. This is unlikely to offer gold much support as an inflation hedge if it reinforces the idea that a hawkish Fed pivot is coming/already in motion.