Gold price edges down amid firm US Dollar ahead of Fed policy meeting

• Gold price falls further as the US Dollar rises ahead of Fed’s monetary policy announcement.
• The Fed’s dot plot will be the key trigger in the monetary policy meeting.
• US Treasury yields fall modestly but broadly remain firm.

Gold price (XAU/USD) remains under pressure in Wednesday's early American session as investors await the Federal Reserve’s (Fed) monetary policy decision, which will be announced at 18:00 GMT. The Fed is expected to maintain interest rates unchanged as the victory against stubborn United States inflation is still out of sight. Investors will keenly focus on the Fed’s dot plot and economic forecasts, which will indicate interest rate projections and the outlook on the US economic performance, respectively.

Market participants will also pay attention to Fed Chair Jerome Powell’s press conference to get cues about the timing of rate-cuts. Currently, expectations for the Fed lowering interest rates in the June meeting have eased somewhat. Fed policymakers said they want to see inflation easing for months as evidence to confirm that price growth will return to the 2% target. However, inflation data for the first two months of 2024 signaled that price pressures remain sticky.

Meanwhile, 10-year US Treasury yields have come down gradually to 4.28% from their three-month high of 4.35%. A hawkish Fed guidance would increase yields on Treasury bonds. Ahead of the Fed, the US Dollar Index (DXY) continues its winning spell for the fifth trading session as stubborn inflation pressures have cast doubts over the Fed’s prior three rate-cut projections for this year.

Daily digest market movers: Gold price drops as US Dollar strengthens

• Gold price falls slightly to $2,150 amid uncertainty ahead of the Federal Reserve’s interest rate decision. The Fed is widely anticipated to keep interest rates unchanged in the range of 5.25%-5.50% for the fifth time in a row. Therefore, market participants will majorly focus on the Fed’s dot plot and economic projections.
• The Fed’s dot plot, which is updated quarterly, shows policymakers’ projections for interest rates over different time frames. December’s dot plot indicated that policymakers saw back then three rate cuts for 2024 and believed that the rate-tightening campaign had peaked.
• Fed policymakers have been reiterating that rate cuts are appropriate only if they get evidence that inflation is declining towards 2% in a sustainable manner. For interest rate decisions, Fed policymakers generally consider the core Consumer Price Index (CPI) data as it remains free from the impact of volatile food and energy prices. Core inflation has remained broadly sticky in the first two months of 2024, adding to speculation that the Fed will project fewer than three rate cuts for this year. If this happens, it would increase the opportunity cost of investment in non-yielding assets such as Gold, weighing on its price.
• The CME FedWatch Tool shows that there is a 60% chance that at least three rate cuts will be announced by 2024. The chances for at least three rate cuts were slightly below 80% prior to the release of the February hot consumer and producer inflation data. Higher-than-expected US producer and consumer inflation has also dented market expectations for the Fed to begin rate cuts in the June policy meeting.
• Later this week, investors will focus on the preliminary S&P Global Manufacturing and Services PMI for March. The Manufacturing PMI is anticipated to fall to 51.7 from 52.2 in February.

Technical Analysis: Gold price drops to near $2,150

Gold price falls after facing stiff pressure near the crucial resistance of $2,160. The precious metal trades inside Tuesday’s trading range. it is likely to break the consolidating trend after the Fed’s policy meeting. 

The precious metal may continue its downside towards the 20-day Exponential Moving Average (EMA) at $2,097. After a wide divergence, the asset tends to face a mean-reversion move, which results in a price or a time correction.

On the downside, December 4 high near $2,145 and December 28 high at $2,088 will act as major support levels.

The 14-Relative Strength Index (RSI) retraces from its peak near 84.50, although the upside momentum is still active.