- XAU/USD closes for the third consecutive week in negative territory.
- Optimistic FOMC monetary policy outlook and rising US Treasury yields weigh on gold.
- XAU/USD appears to have formed technical support at $1,740, ahead of $1,730.
As a result of the previous week’s decline, gold rebounded and closed in positive territory on Monday and Tuesday. As the US dollar gained strength as a result of the FOMC’s upbeat monetary policy outlook, XAU/USD lost traction after reaching its highest level since Thursday’s sharp drop the previous week. As U.S. Treasury yields rose in the second half of the week, gold prices fell to a multi-week low of $1,737 on Thursday before staging a technical rally and closing near $1,750 on Friday.
Last week’s summary
Concerns about the Evergrande crisis escalating into global turmoil led market participants to seek refuge in safe-haven assets at the start of this week. S&P 500 opened with a large bearish gap on Monday morning and lost 1.7%.
During Wednesday’s Asian session, the People’s Bank of China maintained its 1-year and 5-year LPRs at 3.85% and 4.65%, respectively. However, the PBoC also injected around 110 billion Chinese yuan in short-term cash in order to boost market sentiment.
The USD remained defensive on Wednesday, as risk appetite returned to the markets, allowing the XAU/USD to extend its recovery. As a result, the USD was boosted by the FOMC monetary policy announcement in the latter half of the day and gold dropped.
Following the September meeting, the FOMC left the benchmark interest rate and target range for fed funds unchanged at 0% -0.25%, as widely expected. According to the Fed, if progress toward overall employment and inflation targets continues as expected, a moderating in the pace of asset purchases will soon be warranted.
Further, FOMC Chairman Jerome Powell clarified that the statement language intended to set the bar for gradual tapering of bond purchases could be met as soon as the next meeting. Powell added that they plan to end the tapering by the middle of 2022.
Due to the positive outlook, the US dollar index DXY rose to a monthly high and the gold price XAU/USD ended a three-day winning streak.
The impressive rise seen in US Treasury yields weighed heavily on gold on Thursday, pushing XAU/USD to a fresh 5-week low of $1,737.84. Gold closed the week at $1,750 after a technical correction.