Gold Price Analysis: XAU/USD eyes last week’s lows at $1872 as focus turns to Wednesday’s Fed meeting

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  • Gold has started the week on the back foot, and is already about 1.0% lower in the $1880 area.
  • XAU/USD is eyeing a test of last week’s lows at $1872 as focus turns to this week’s Fed meeting.

Spot gold (XAU/USD) prices trade firmly on the back foot at the start of the first trading day of May, with prices last trading lower by just under 1.0% in the $1880 per troy ounce area, having dropped about $17. Despite much worse than expected official April PMI numbers released out of China over the weekend that have exaccerbated fears about lockdown induced economic slowdown there, as well as increased jawboning from various EU officials on Monday regarding a possible embargo on Russian oil imports, gold has not been able to maintain a lasting bid.

The US dollar, with which XAU/USD has had a strong negative correlation as of late, has started the week on the front foot, as focus turns to an anticipated 50 bps rate hike from the Fed on Wednesday. Hawkish expectations going into the meeting, with the bank expected to signal more 50 bps rate hikes coming at its next few meetings as well as announce quantitative tightening plans, are discouraging investors from buying/holding gold, even as global inflation/geopolitical/growth concerns linger.

Higher interest rates as a result of central bank policy tightening tend to weigh on non-yielding assets such as gold given the rising “opportunity cost”. XAU/USD bulls will undoubtedly be eyeing a test of support in the form of last week’s lows in the $1872 area. A break below this key area of support would open the door to a run lower towards the 200-Day Moving Average in the mid-$1830s. Ahead of Wednesday’s Fed meeting, gold traders will also be watching the release of April US ISM Manufacturing data on Monday at 1500BST and March JOLTs Job Openings data at 1500BST on Tuesday for an update as to the economy’s ongoing strength and labour market tightness.