In times of economic hardship, investors and traders alike tend to turn to safe havens to navigate uncertainties in the market. The two main instruments of focus are usually the US dollar and Gold. These two instruments share an inverse relationship, which leaves traders wondering which way to shield themselves from the economic instability predicted to hit the markets through 2023. In the third quarter of 2022, major central banks bought a staggering 400 tons of Gold, with the PBOC among the major buyers. This, along with easing monetary expectations for the year, could keep the Gold bulls in play, but in the short term, looming interest rate hikes are weighing on them as they struggle to push the spot price higher.
Despite all odds, the dollar weakened on Tuesday, pushing the Gold spot to $1927,32 per ounce in the first higher close in four trading sessions. With significant interest rate decisions looming and central banks looking to slow down their economies, gold traders will be keeping an eye on the rate of the interest rate hikes in deciding whether to hold on to their store of value. Hawkish interest rate decisions could potentially have an adverse effect on the gold price, with currencies gaining momentum amid a high-interest rate environment.
Gold spot prices recently moved below the 50-day moving average (SMA) as bearish momentum entered the market based on the macroeconomic environment. Divergence was seen in the market in the week leading up to this breakout, with Gold trending upward and the RSI indicating a downward trend. The Fed is likely to raise interest rates by a further 25bps later today, which could be a catalyst for another downside move for Gold.
After the announcement, a first support level of $1920,68 per ounce might be a focal point for traders. If support does not hold at that level, another possible downside move in price might be on the cards, bringing the next support level of $1900,08 per ounce into play. However, if the Fed surprises and announces a less hawkish outlook for interest rates, the bull might put up another fight for Gold that could push the spot to a potential level of $1946,08 per ounce.
With critical trading hours ahead, the interest rate decision by the Fed may be the final indicator for traders to decide whether they believe Gold will remain strong in the economic landscape going forward. A hawkish Fed could bring the bears into play with a potential short entry at $1920,68 if support does not hold.
Sources: Koyfin, World Gold Council, TradingView.