Commodity Market: Gold set for largest weekly drop since March 2020 as FOMC’s hawkish turn bolsters dollar to a nine-week high

Spot Gold rebounded on Friday, but was still on track to register its steepest weekly decline since the business week ended March 13th 2020, after the Federal Reserve’s hawkish policy reversal bolstered the US Dollar to a nine-week high.

The FOMC indicated on Wednesday that it would consider whether to scale back the bank’s asset-purchasing programme on a meeting by meeting basis and also presented projections for the first post-pandemic interest rate hikes into 2023.

Potentially higher interest rates would reduce the appeal of the safe-haven metal, as they would increase the opportunity cost of holding non-interest yielding bullion.

The reversal in the Fed’s policy outlook was the main factor behind the precious metal’s steep retreat over the week and, according to ED&F Man Capital Markets analyst Edward Meir, “the reaction in gold has been somewhat overdone.”

“Despite the current high-growth, inflationary environment, the proposed Fed rate hikes are not expected to set in for at least another 18 months. So after a little bit more weakness here, gold prices will regroup and push higher,” Meir was quoted as saying by Reuters.

As of 8:22 GMT on Friday Spot Gold was gaining 1.02% to trade at $1,791.40 per troy ounce. Yesterday the metal slipped as low as $1,767.29 per troy ounce, which has been its weakest price level since May 3rd ($1,766.29 per troy ounce).

Gold was on track to register its third straight weekly loss and also the largest one since March 2020, while being down 4.62%. The yellow metal has retreated 6.07% so far in June, following a 7.60% surge in May.

Meanwhile, Gold futures for delivery in August were gaining 0.95% on the day to trade at $1,791.70 per troy ounce, while Silver futures for delivery in July were up 2.29% to trade at $26.448 per troy ounce.

The US Dollar Index, which reflects the relative strength of the greenback against a basket of six other major currencies, was edging up 0.12% to 92.010 on Friday. Earlier in the session the DXY rose as high as 92.070, which has been its strongest level since April 13th (92.325).

Near-term investor interest rate expectations were without change. According to CME’s FedWatch Tool, as of June 18th, investors saw a 100.0% chance of the Federal Reserve keeping borrowing costs at the current 0%-0.25% level at its policy meeting on July 27th-28th, or unchanged compared to June 17th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – $1,788.66
R1 – $1,810.03
R2 – $1,846.69
R3 – $1,868.06
R4 – $1,889.43

S1 – $1,752.00
S2 – $1,730.63
S3 – $1,693.97
S4 – $1,657.31