The price of gold took a hit as the Federal Reserve of the United States took markets by surprise and delivered a hawkish statement. The Fed raised the interest rate on excess reserves and admitted that it is looking at starting the tapering of its asset purchases.
But the biggest hit for gold and other US dollar-denominated assets came from the dot plot. The Fed’s dot plot showed two, not one, possible rate hikes in 2023, and that was enough for the US dollar to rally.
Gold price has come a long way up from the double bottom below the $1,700 area, but the move higher was correlated with risky assets. In other words, it was not a move belonging to the gold market only, but a correlated risk-on move that reversed the other day with the Fed’s announcement.
After the Fed’s announcement, the price of gold confirmed a head and shoulders formation in the sense that the market reached the pattern’s measured move. Yet, the measured move is only the minimum distance the market needs to travel after such a reversal pattern. Hence, more downside may lie ahead.
Bears might want to remain on the short side with a stop at $1,900 and targeting a move to $1,600 and below.
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