Gold prices retreat as Fed's decision sparks concerns of future rate hikes

Gold prices took a hit in response to the Federal Reserve’s decision to maintain interest rates at their current levels. This move, though widely expected, has dampened the optimism that had been building in the gold market. The central bank’s announcement, made on Wednesday, marked a departure from its previous pattern of raising rates and introduced a hint of caution for gold investors.

While the decision to keep rates steady may have initially seemed favourable for gold, the Federal Reserve’s forward guidance revealed a different story. The central bank signalled its intention to implement at least two more rate hikes within the year, which stirred unease among traders who had been hoping for a more extended pause in the rate hike cycle.

The Fed’s adjusted benchmark rate forecast, projecting a peak rate of 5.6% in 2023, up from the previous estimate of 5.1%, further exacerbated the downward pressure on gold prices. This revised projection implies that the central bank is taking a more hawkish stance, which may weigh on gold’s performance in the coming months.

Spot gold XAU/USD is currently testing last week’s low of $1,932. The precious metal has been confined within a narrow trading range for almost a month, with lingering uncertainty surrounding the Fed’s actions. This recent dip in prices suggests a growing inclination for gold to break out on the downside. A break below $1,932 could potentially open the floodgates, with the possibility of spot falling to $1,900.