Gold shrugs off Fed hike as falling yields reopen path to $4,400

On Thursday, gold prices surged by more than 2%, reaching $4,361 after the Federal Reserve's rate hike. The rise was fueled by falling oil prices, which pushed down US yields and the US Dollar. The XAU/USD pair broke through the 100-day Simple Moving Average of $4,320, prompting investors to target the $4,400 level. The Middle East conflict de-escalation also contributed to the metal's rise.

West Texas Intermediate crude oil prices dropped by 0.16%, negatively impacting the greenback due to its positive correlation. The US Dollar Index (DXY) fell by 0.12% to 100.22, while US Treasury yields decreased by 7 basis points to 4.949%. Fed Chair Kevin Warsh stated that inflation has been persistently high for too long, prompting the Fed to raise rates by 25 basis points to the 3.75%-4% range.

The Federal Reserve's dot plot indicates that another rate increase is expected by the end of 2026. The Personal Consumption Expenditures (PCE) price index is projected to stay at 3.7% this year, moving towards the Fed's 2% target by 2028. Money markets predict a 53% chance of another rate hike at the October meeting. Analysts are optimistic about gold's short-term recovery, with a bullish engulfing candle pattern forming.

Gold's first resistance is at $4,400, followed by $4,450 and $4,500. A break above $4,500 could pave the way for further gains, with the 200-day SMA at $4,540 as the next target. If gold falls below the 100-day SMA of $4,323, it may continue its downward trend, reaching the 50-day SMA at $4,283 and the July 6 high-turned support at $4,202.

Gold has historically functioned as a store of value and hedge against inflation and currency depreciation, often held by central banks due to its inverse correlation with the US Dollar and US Treasuries.