Skip to content

We want to clarify that IG International does not have an official Line account at this time. We have not established any official presence on Line messaging platform. Therefore, any accounts claiming to represent IG International on Line are unauthorized and should be considered as fake.
CFDs are complex instruments. 70% of retail client accounts lose money when trading CFDs, with this investment provider. You can lose your money rapidly due to leverage. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money.
CFDs are complex instruments. 70% of retail client accounts lose money when trading CFDs, with this investment provider. You can lose your money rapidly due to leverage. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money.

Is this the moment of reckoning for gold?

Gold’s rally is showing signs of fatigue; hawkish commentary from Fed officials is leading to a reassessment of rate cuts this year and what is the outlook and key levels to watch in XAU/USD?

Source: Bloomberg

The apparent progress in US debt ceiling talks and hawkish US Federal Reserve commentary has taken off some of the heat off gold’s rally. The focus now shifts to key support levels – a break below which would solidify the chances that gold’s rally had peaked for now.

XAU/USD has been lofty in recent weeks amid fears of a potential US debt default and hopes of an end of the Fed hiking cycle. But those drivers appear to be changing.

“I’m confident that we’re going to continue to make progress toward avoiding default and fulfilling America’s responsibility as a leader on the world stage”, US President Joe Biden said after a meeting with top Republican lawmakers met at the White House on Tuesday.

XAU/USD daily chart

Source: TradingView

US Treasury yields have risen in recent days following hawkish comments from Fed officials – Richmond Fed President Thomas Barkin said he was “comfortable” with raising rates further if needed to lower inflation.

Cleveland Fed chief Loretta Mester said the US central bank was not at a point yet where it can hold rates steady. This follows remarks from New York Federal Reserve President John Williams last week that the Fed may not be done raising rates.

XAU/USD monthly chart

Source: TradingView

The Fed earlier this month raised interest rates by 25 bps as expected, but indicated a pause in the hiking cycle. Markets are currently pricing in an 18% chance of another 25 basis points of a rate hike at the June meeting.

The odds of 75 basis points rate cuts by the year-end have scaled back to 35% from 42% a week ago, according to CME’s FedWatch tool.

XAU/USD weekly chart

Source: TradingView

On technical charts, the momentum on higher timeframe charts has been a concern in recent months.

However, a price confirmation has been lacking, that is, gold hasn’t broken any key support even on intraday charts. For instance, XAU/USD is holding above crucial support at the mid-April low of 1970 and the 200-period moving average on the 240-minute charts.

XAU/USD 240-minutes chart

Source: TradingView

However, Tuesday’s drop below the moving average is a sign that cracks are beginning to appear.

This is confirmed by the 240-minute colour-coded candlestick chart (based on trending/momentum indicators) – for the first time since March, red candles have started to appear, that is, a bearish phase could be setting in.

Moreover, on the daily charts, XAU/USD has entered a consolidation phase – note the early-May high of 2072 was part of the consolidation and not the start of a new leg higher (which the subsequent price action has confirmed).

To be fair, unless 1970 support gives way, the path of least resistance could be sideways at best. However, any break below 1970 could expose downside risks toward 1925.

XAU/USD daily chart

Source: TradingView

*Note: In the above colour-coded chart, blue candles represent a Bullish phase. Red candles represent a Bearish phase. Grey candles serve as Consolidation phases (within a Bullish or a Bearish phase), but sometimes they tend to form at the end of a trend. Note: Candle colors are not predictive – they merely state what the current trend is. Indeed, the candle color can change in the next bar. False patterns can occur around the 200-period moving average, or around a support/resistance and/or in sideways/choppy market. The author does not guarantee the accuracy of the information. Past performance is not indicative of future performance. Users of the information do so at their own risk.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.