Gold Price Outlook: XAU/USD Falls Steeply as Fed Signals a March Rate Hike

Summary:

As the Fed signals a potential rate hike in March, gold prices responded with a steep fall on the back of a stronger US Dollar.

Gold prices fell on Wednesday by 1.63% after the US Federal Reserve left interest rates unchanged. However, the FOMC has left the door open to a potential lift-off for a rate hiking cycle, beginning from March 2022.

The US economy has been groaning under record-h igh inflation, putting a squeeze on consumers and businesses. With unemployment also falling in tandem with rising inflation, little justification remains to continue with asset purchases in a low-rate environment.

The FOMC statement said it would soon be appropriate to raise rates, but the market appears to be pricing in a lift-off in March, which is also when the asset purchases will end.

Gold Price Outlook

The FOMC statement provided strength to the US Dollar, allowing the XAU/USD pair to maintain the bearish stance for the day. This sentiment manifested as rejection of price at the upper boundary of the rising wedge, ending with a slight violation of the lower border of the wedge.

Only the 1815.20 support kept the price from falling further, but the threat of a breakdown remains. If this support level collapses, 1789.51 becomes the next target. 1763.30 and 1741.01 remain additional downside targets.

On the other hand, a bounce on the 1815.20 support allows the price to retest the resistance zone between 1828/1840. If the price breaks above this zone, 1860.77 becomes the target of choice.