Gold prices (XAU/USD) faced selling pressure on Wednesday as the Federal Reserve’s hawkish stance became more apparent following the release of the Federal Open Market Committee (FOMC) minutes. The minutes suggested a significantly more cautious approach, with the Fed likely to maintain its restrictive policies for a longer period, bolstering the US dollar and exerting downward pressure on gold.
Traders are closely monitoring the preliminary readings of the US Manufacturing and Services Purchasing Managers Index (PMI) for May. A weaker PMI could ignite hopes for Fed rate cuts, potentially supporting gold prices. Additionally, geopolitical tensions, economic uncertainties, and persistent inflation may provide some support for the precious metal, limiting its downside in the short term. Other key data points include the Chicago Fed National Activity Index, weekly Initial Jobless Claims, New Home Sales, and remarks from Fed’s Raphael Bostic.
Gold Prices React to Fed’s Hawkish Remarks
The FOMC minutes, released on Wednesday, revealed that “participants observed that while inflation had eased over the past year, recent months showed a lack of further progress towards the Committee’s 2 percent objective.” The minutes also noted that “participants assessed that maintaining the current target range for the federal funds rate at this meeting was supported by data indicating continued solid economic growth.”
Investors have priced in nearly a 60% chance of the first rate cut occurring in September, with expectations for two quarter-percentage-point reductions by the end of the year, according to the CME FedWatch Tool.
The preliminary US S&P Global Manufacturing and Services PMI for May are expected to remain steady at 50.0 and 51.3, respectively. The People’s Bank of China (PBoC) has been the largest buyer of gold among global central banks over the past year, adding 225 tonnes to its reserves, the highest annual increase since at least 1977.
Technical Analysis: Gold’s Bullish Outlook Faces Bearish Divergence
Despite a softer trading day, gold maintains a bullish outlook on the daily chart, remaining above the key 100-period Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) holds in the bullish zone near 56.10, suggesting continued support for buyers. However, a bearish divergence has formed, with gold reaching an all-time high on May 20 while the RSI has marked lower highs, indicating slowing momentum and potential for a near-term correction or consolidation.
Key resistance for gold is near the upper boundary of the Bollinger Band and the all-time high of $2,450. A break above this level could see prices rise to the psychological $2,500 mark. On the downside, the May 13 low of $2,332 serves as initial support, with further declines possibly extending to the lower Bollinger Band limit at $2,270 and the 100-period EMA at $2,216.
