Gold Price Forecast: XAU/USD plunges below the 20-day EMA post-Fed hawkish minutes

• Gold prices take a hit, dropping below the 20-day EMA, after the Federal Reserve hints at a potential rate hike in July.
• The resurgent US Dollar and soaring Treasury bond yields further tighten the screws on the precious metal’s bullish momentum.
• Despite a unanimous decision for a June pause, officials’ concerns over a tight labor market point to a looming rate increase.
• Market expectations for July rate hikes remained high, with odds at 88.7%, according to the CME FedWatch Tool.

Gold price snaps three days of gains, tumble below the 20-day Exponential Moving Average (EMA), after the US Federal Reserve (Fed) release of June’s monetary policy meeting minutes, which were tilted hawkish, with officials worried about the tightness of the labor market. Although most officials agreed to a June pause, a July rate hike is almost inevitable. At the time of writing, the XAU/USD exchanges hands at $1916.80, down 0.44% after reaching a high of $1934.97

The greenback is staging a comeback, a headwind for Gold. The US Dollar Index (DXY) rises 0.29%, at around 103.370, while US Treasury bond yields are soaring, with the 10-year benchmark note rate at 3.945%, gaining eight and a half basis points (bps). Money market futures speculate the Fed will raise rates in July, with odds of a 25 bps rate hike at 88.7%, as shown by the CME FedWatch Tool.

Summary of the FOMC’s June meeting minutes

The minutes from the Federal Open Market Committee (FOMC) meeting revealed a unanimous agreement among all participants to maintain unchanged interest rates to assess the cumulative impact of previous tightening measures. However, some Fed officials advocated for a 25 basis point rate hike, citing the tightness of the labor market as their justification. Despite differing opinions on specific rate adjustments, all participants concurred on the necessity of maintaining a restrictive monetary policy stance.

Similarly, the May minutes showed that the Federal Reserve staff forecasts a mild recession towards the end of the year. Additionally, the minutes emphasized that the policy outlook hinged on the presence of upside risks to the inflation trajectory and the potential for inflation expectations to become unanchored. These factors remain crucial considerations for the Federal Reserve’s decision-making process.

XAU/USD Price Analysis: Technical outlook

XAU/USD remains neutral to downward biased, unable to break above solid resistance at the 20-day EMA at $1930.93, seen as the first resistance level by Gold buyers. In addition, a Wednesday’s daily close below Tuesday’s low of $1919.89 can open the door for further downside, with XAU/USD sellers eyeing the $1900 figure, followed by the 200-day EMA a $1896.80. Once that level is cleared, the next support would be June’s 29 swing low and three-month-low of $1893.12. Conversely, if XAU/USD reclaims the 20-day EMA, followed by the 50-day EMA at $1835.34, XAU buyers would remain hopeful to test $1950.