Gold Volatility and Market Sentiment Amid Uncertain Economic Recovery
The XAU/USD (gold/US dollar) pair has attempted to break and consolidate above the $1838 level. Still, traders are currently nervous as they await the release of the FOMC (Federal Open Market Committee) minutes on Wednesday.
This uncertainty has led to some volatility contraction, with traders hesitant to take aggressive measures until they have more information. Meanwhile, the S&P500 futures have experienced gains after a previous decline.
The decline was driven by concerns that the Federal Reserve’s monetary policy may not be enough to control inflation. As a result, despite the recent gains, market participants are advised to remain cautious as the overall sentiment in the market is currently risk-averse.
The DXY is attempting a rebound following a mild correction in the 103.70 zone. Additionally, the US Yields have seen a minor correction, with the 10-year yield declining below 3.96%. Despite this, investors favor the upside, primarily due to the hawkish signals from the Federal Reserve.
The Policymakers’ decision to raise interest rates by 25 basis points in February has sent a clear message to the market that the US economy is performing well. Furthermore, the Fed has hinted that it may raise rates further to counteract the potential risks of inflation.
This hawkish stance has supported the US dollar, with investors eager to take on long positions in anticipation of higher interest rates. In addition, releasing the minutes from the FOMC meeting is important to traders and investors, as it provides valuable insight into the central bank’s decision-making process.
For example, the minutes will explain the 25% rate hike beginning of February. In addition, investors will eagerly await guidance on the terminal rate and inflation predictions for mid and long-term positions.
According to Reuters, the minutes are highly anticipated, and any significant surprises could cause a sharp market reaction.
For instance, if the minutes reveal that the Fed is considering a more aggressive path of rate hikes, the US dollar could see a significant boost, and yields could rise further. On the other hand, if the minutes indicate that the Fed is adopting a more dovish stance, the US dollar could experience a decline.
Technical Analysis of Gold
Possible bullish scenarios for gold include a break above the upper trendline, which could signal a continuation of the uptrend from the low of February 8 at $1,769.92. In this case, the first significant resistance level for gold would be at the recent high of $1,847.59, followed by the psychological level of $1,850.
On the other hand, a break below the lower trendline could signal a reversal of the uptrend and a bearish continuation. In this case, the first significant support level for gold would be at the recent low of $1,791.43, followed by the psychological level of $1,780.
Traders should remember that the Symmetrical Triangle pattern is neutral, and a breakout in either direction is not guaranteed. Furthermore, a false breakout is also possible, where the price briefly breaks out of the pattern but reverses.
Regarding fundamental factors impacting the gold price, the FOMC meeting minutes on Wednesday could provide some direction. In addition, significant developments in the global economic recovery and geopolitical tensions could also impact the precious metal’s price.
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