Gold bounces, remains in tight range

Gold (XAU/USD) has been quite erratic this week, but its price remains within the narrow range it has maintained over the past month

Initially, gold faced a sell-off following the Federal Reserve’s decision, and it appeared as though it had broken below the lower limit of the range yesterday. However, the precious metal quickly bounced back and is currently testing the upper boundaries of the range, hovering around $1,965. It’s safe to say that yesterday’s fall was a false breakout, especially considering the retreat of the US dollar. Now, the big question remains: can gold break through the upper resistance and resume its upward climb? Keep an eye on the key level of $1,970, if this cracks and holds $2,000 is the next big hurdle.

On Wednesday, the Federal Reserve announced its decision to keep the benchmark interest rate steady. In addition, the central bank indicated that it plans to implement at least two more rate hikes later this year in an effort to combat high inflation.

However, a series of US economic data has raised doubts about the Federal Reserve’s ability to continue raising interest rates. Reports of soft consumer inflation, higher-than-expected weekly jobless claims, and weak industrial production have fueled speculation that the central bank may have limited room to manoeuvre when it comes to raising rates.

For gold, an extended pause in the Federal Reserve’s rate hike cycle could be seen as positive. This is because rising interest rates increase the opportunity cost of holding non-yielding assets like gold. With expectations of a slowdown in rate hikes, investors may find gold more appealing as a safe-haven investment and a hedge against inflation.