- Summary:
- Gold price spikes intraday as Federal Reserve expands asset purchase program and launches new lending windows for small and big businesses.
Gold price action has experienced a bullish surge intraday as the US Federal Reserve announced that it would purchase government-backed bonds in “amounts needed to ensure smooth market functioning”.
In other words, the Fed is pledging to buy bonds in unlimited amounts. Also, the Fed has promised to do the following:
- Two new funding facilities for large employers: one for corporate bonds and the other for new bonds and loans. These are expected to have tenors of up to 4 years with zero interest on the principal for the first six months.
- A new “Main Street Business Lending Program” which will provide support for small and medium-scale businesses will also be announced shortly.
- Launch of a term asset-backed loan facility (TALF) and this will be collateralized by equipment loans, commercial mortgage loans, student loans, credit cards and loans guaranteed by the Small Business Administration (SBA).
The US Dollar weakened broadly on the announcement, allowing the gold price on the XAUUSD pairing to gain about $29 within the hour.
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Technical Outlook for XAUUSD
The symmetrical triangle on the 4-hour chart was expected to lead to a downside continuation of price. However, the Fed announcement changed the immediate sentiment and led to a bullish violation of this triangle. A second candle close confirms the bullish break of the triangle and opens the door for the gold price to target 1537.14 in the first instance, with 1548.36.
On the flip side, a pullback retests the triangle’s upper border/apex at 1494.18, with 1475.53 being the new target is the triangle is unable to withstand the pullback forces.