The Federal Reserve of the United States raised interest rates by a half of a percentage point, bringing them to a range of 4.25 to 4.50 percent. This is the highest level they have been at in the past 15 years. Powell, the chair of the Federal Reserve, contributed a dismal tone to the proceedings at the news conference, despite the fact that the move was completely anticipated. Powell stated that in order to have “confidence that inflation is on a decreasing trend,” there has to be “much more data,” despite the fact that the recent decline in inflation has been acknowledged. In addition to this, the earlier Fed dot plot, which is a graphic of each Fed official’s short-term rate forecasts, showed that rates are projected to rise throughout the entirety of 2023, culminating in a terminal rate of 5.1 percent at the end of the year.
After the Federal Reserve raised interest rates by 50 basis points and raised their 2023 forecast, the dollar surged while the markets fell incontrast.
Following the FOMC meeting, the US currency strengthened, and yields on US Treasury bonds increased, although these movements were rather subdued since different market participants have varied expectations for the future course of US interest rates. In spite of the fact that the Fed anticipates that interest rates will reach their highest point of 5.1% in December 2023 and that the first rate cut would not occur until at least 2024, indications from the market point to the contrary.
Following today’s FOMC meeting, the price of gold experienced a significant decline, which completely wiped away this week’s gains. The precious metal was unable to break through a region of resistance that was located between $1,807/oz and $1,810/oz, and it appears that it will attempt to test the short-term support that is located around $1,766/oz. Gold needs to recapture the 200-day moving average, which is currently at $1,787 per ounce, and make a confirmed break back above the overhead resistance before it can continue its advance upward.
According to data from retail traders, 75 percent of market participants are long positions on gold, and the ratio of long positions to short positions is almost 3 to 1.
While the number of traders who are net long has decreased by 12 percent since yesterday and is 2 percent lower than it was last week, the number of traders who are net short has increased by 3 percent since yesterday and is almost 5 percent lower than it was last week.
The standard approach is to take the opposite viewpoint of the general public, and the fact that traders are currently net-long in gold signals that prices may continue to decline. The positioning is currently more net long than it was yesterday but net shorter than it was a week ago. The current sentiment, in conjunction with the previous shifts, provides us with a trading bias that is further mixed for gold.