The dollar-denominated commodity capitalized on USD selling amid a dovish tone from the Fed
Gold prices rose sharply late on Wednesday due to the post-FOMC US dollar selling, which traditionally benefits the dollar-denominated commodity. The greenback came under downside pressure after the Federal Reserve downplayed investor expectations and indicated that it was in no rush to raise interest rates at least through 2023. At the same time, the central bank upgraded its economic projections, sending global stocks higher.
Against this backdrop, the yellow metal briefly jumped above $1,750 in a knee-jerk reaction to the outcome of the meeting. Furthermore, the bullion extended the rally early on Thursday. However, the prices failed to preserve gains and were rejected from early-March highs in the $1,755 area. Early in Europe, the selling pressure surrounding the precious metal intensified, sending the XAUUSD pair back below the 20-DMA, today at $1,739. The rapid correction was due to a resurgent demand for the greenback as investor optimism from the Fed meeting wanes.
The fact that gold prices failed to extend a bounce and preserve modest gains confirms their vulnerability that will likely persist as the dollar stays strong and elevated. The emergence of fresh selling around the mentioned highs implies that the recent recovery from multi-month lows might have run out of steam already. Failure to hold above this week’s lows around $1,720 will reaffirm the bearish outlook for the commodity in the short term at least.
As such, despite the technical picture has improved somehow over the past week amid a rebound from long-term lows around $1,676 seen earlier this month, to regain a more sustained bullish footing, XAUUSD would need to make a decisive break above the $1,760 region that capped upside attempts nearly three weeks ago. Meanwhile, in the immediate term, the bullion needs to regain the 20-DMA and confirm a recovery on a daily closing basis. Otherwise, further losses could lie ahead in the coming days.