Gold rallied more than 2% on Thursday, trading at $4,361 per troy ounce, as a fall in oil prices dragged the US dollar and Treasury yields lower and helped investors look past the Federal Reserve’s latest interest rate increase.
The precious metal cleared a key technical level at the 100-day simple moving average (SMA) of $4,320 and is now targeting the $4,400 mark. A potential easing of Middle East tensions also supported the non-yielding metal by weighing on crude prices.
Fed raises rates but dollar and yields slip
The Federal Reserve raised its benchmark rate by 25 basis points to the 3.75%-4% range on Wednesday, the first hike in three years, and signalled further tightening ahead. Fed Chair Kevin Warsh said inflation “is too high and has been for too long.” However, the reaction in currency and bond markets was muted the following day.
The US Dollar Index (DXY), which measures the greenback against six major currencies, fell 0.12% to 100.22. US Treasury yields dropped 7 basis points to 4.949%, erasing part of the hawkish move seen after the Fed decision. Lower oil prices — West Texas Intermediate crude fell about 0.16% — contributed to the dollar’s weakness because of the positive correlation between oil and the US currency.
The Fed’s dot plot projects the funds rate at around 4.10% by end-2026, implying another rate increase in the foreseeable future. Money markets are pricing a 53% chance of another hike at the October meeting, according to Prime Terminal. The Fed sees inflation, as measured by the Personal Consumption Expenditures (PCE) price index, staying at 3.7% this year before converging to its 2% target through 2028.
Technical picture: bulls eye $4,400 and beyond
Thursday’s price action has formed a ‘bullish engulfing’ candle pattern, a sign that buyers are regaining control. If gold closes above the September 16 high of $4,366, that would confirm the recovery. However, a sustained move above $4,500 is needed for a more decisive bullish trend.
The Relative Strength Index (RSI) is trending higher but remains below its 50 neutral level, meaning neither buyers nor sellers are firmly in charge. A break above 50 would signal further upside.
Initial resistance is at $4,400, followed by the psychological levels of $4,450 and $4,500. Beyond that, the next target is the 200-day SMA at $4,540. On the downside, if gold falls below the 100-day SMA at $4,323, support sits at $4,300, then the 50-day SMA at $4,283, and finally the July 6 high-turned-support at $4,202.
Key takeaways
- Gold gained over 2% on Thursday, trading at $4,361, as lower oil prices pushed the dollar and yields lower.
- The Fed raised rates by 25 bps to 3.75%-4%, the first hike in three years, but the dollar and Treasury yields fell the next day.
- The 100-day SMA at $4,320 has been cleared; next resistance is $4,400, then $4,450 and $4,500.
- Money markets see a 53% chance of another rate hike in October.
You can track the latest movements on our live gold price page.
Common questions
Why is gold rallying if the Fed raised rates?
Gold normally struggles when interest rates rise because it pays no yield. In this case, a sharp drop in oil prices pushed the US dollar and Treasury yields lower, which supported gold despite the rate hike. Investors also appeared to have already priced in the increase.
What is the 100-day simple moving average?
The 100-day simple moving average is a technical indicator that averages gold’s closing price over the past 100 trading days. It is used by traders to identify support and resistance levels and to gauge the medium-term trend.
What does a ‘bullish engulfing’ pattern mean?
A bullish engulfing pattern occurs when a small red (down) candle is followed by a larger green (up) candle that completely “engulfs” the previous day’s range. It is considered a reversal signal that suggests buyers have taken control.
Looking ahead, traders will watch Friday’s US industrial production report and a speech by Fed Governor Michelle Bowman for further direction.