- Gold comes under renewed selling pressure on Tuesday amid reviving demand for the dollar.
- The Fed’s aggressive rate hike bets lift US bond yields and continue to support the dollar.
- Risk aversion momentum does not support XAU/USD ahead of FOMC meeting.
The Prayed meets fresh bid on Tuesday and extends its steady intraday decline throughout the early American session. The XAU/USD it is currently hovering around the $1,660 mark, down nearly 0.90% on the day, and remains within striking distance of its lowest level since April 2020, hit on Friday.
The US dollar attracts aggressive bids and recovers solidly from a one-week low, which, in turn, is seen as a key factor putting downward pressure on dollar-denominated commodities. The Federal Reserve is expected to raise interest rates by 75 basis points for the third consecutive time at the end of its two-day policy meeting on Wednesday. Markets have also been pricing in a lesser chance of a 100 basis point rate hike, which continues to support elevated US Treasury yields and continues to act as a tailwind for the dollar.
Indeed, the rate-sensitive 2-year US government bond yield remains near its highest level since November 2007. In addition, the benchmark 10-year Treasury hits a level not seen since April 2011, which is seen as another contributing factor in steering away flows of the non-yielding yellow metal. The intraday drop appears to be unaffected by the momentum of risk aversion, which tends to offer some support to safe-haven gold. This, in turn, suggests that the path of least resistance for XAU/USD is to the downside.
Aside from the long-awaited FOMC decision, the focus will be on the updated economic projections, the so-called dot plot, and comments from Fed Chairman Jerome Powell at the post-meeting press conference. Investors will be looking for clues as to the future path of rate hikes, which will influence short-term dollar price action and help determine the next leg of a directional move for gold. However, the fundamental backdrop still appears to be tilting in favor of bearish traders and any recovery attempts could still be seen as a selling opportunity.
Technical levels
Source: Fx Street
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