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XAU/USD is expected to drop to about $1,900 as aggressive Fed officials dampen market sentiment

XAU/USD is expected to drop to about $1,900 as aggressive Fed officials dampen market sentiment

After a massive sell-off on Tuesday, gold (XAU/USD) is struggling in the Asian session. Given the adverse market movement and aggressive tone espoused by Federal Reserve (Fed) policymakers, the precious metal is anticipated to drop to around the psychological support of $1,900.00. In a speech on Tuesday, Fed Governor Lael Brainard stated that the Fed is prepared to act aggressively if inflation data and expectations indicate that such action is warranted. While Fed President Mary Daly has underlined the need for the Fed to reduce its balance sheet as quickly as possible. Furthermore, increased oil costs will not cause a significant downturn in the US economy.

On the other hand, on negative market mood, the US dollar index (DXY) has risen to almost 99.60. Fed members’ hawkish positions suggest that, in the future, rising interest rates will limit liquidity influx throughout the world. The risk-off impulse has been triggered, and the greenback is now climbing higher. Aside from the DXY, increased prospects of a 50 basis point (bps) interest rate hike have injected steroids into US Treasury rates. The 10-year US Treasury rates have surpassed 2.6 percent and are on the verge of setting a new three-year high.

The price of gold fell somewhat as the US currency gained strength. The DXY index, which measures the value of the dollar against a basket of other currencies, reached its highest level in over two years. The benchmark 10-y++3fear Treasury yield has risen to 2.55 percent, while the two-year yield has risen to 2.56 percent for the first time since March 2019.

Spot gold fell 0.3 percent to $1,916 per ounce, but was trading in a tight range, while US gold futures down 0.1 percent to $1,931.20. XAU/USD is down 0.2 percent at $1,921 at the time of writing, pressured in Asia after comments by Federal Reserve Governor Lael Brainard.

In advance of tomorrow’s hawkish minutes, the Fed member mentioned the possibility of forceful action by the central bank. Brainard stated that the Fed might begin lowering its balance sheet as early as May, and that it would do so at a “rapid pace.” Interest rate rises might be more aggressive than the usual 0.25 percentage point increments, according to Brainard. Meanwhile, during the March meeting, Fed policymakers began the process of policy normalisation by raising rates 25 basis points to 0.25 percent -0.50 percent, and the minutes of that meeting will be issued on Wednesday.

“Gold prices have remained remarkably robust, indicating strong ETF and comex inflows into gold trumping withdrawals linked with a hawkish Fed,” according to TD Securities analysts. “Because actual rates may be less effective as a barometer for evaluating gold’s relative price, we look at gold flows to see how long interest in the yellow metal will last.” ETF flows have tended to be more significantly connected with changes in market expectations for Fed hikes than real rates, the yield curve, or even price momentum, according to our study.

This still shows that the large ETF inflows were driven by safe-haven demand, which might lead to negative risks if negotiations continue to work toward a ceasefire and trade subsidies become a concern.”