Gold price dives to its lowest level since March on higher Fed rate outlook

• Gold price drifts lower for the seventh day and drops to a near seven-month trough.
• The Fed’s hawkish outlook, elevated US bond yields and a bullish USD continue to weigh.
• A softer risk tone does little to lend support to the safe-haven XAU/USD or stall the decline.

Gold price (XAU/USD) has been trending lower after the Federal Reserve (Fed) warned that sticky inflation was likely to attract at least one more interest rate hike in 2023 and reiterated the higher-for-longer narrative in September. Moreover, the incoming resilient macro data from the United States (US) supports prospects for further policy tightening by the Fed and continues to push the US Treasury bond yields higher. This, in turn, lifts the US Dollar (USD) to its highest level since November 2022 and drives flows away from the non-yielding yellow metal.

The downward trajectory remains uninterrupted for the seventh successive day on Tuesday and drags the Gold price to the $1,815 level, or its lowest level since March 9 during the Asian session. The descent, meanwhile, seems rather unaffected by a generally weaker tone around the equity markets, which tends to benefit the precious metal's relative safe-haven status. This, in turn, suggests that the path of least resistance for the XAU/USD is to the downside. That said, extremely oversold conditions on the daily chart warrant some caution for bearish traders.

Daily Digest Market Movers: Gold price continues losing ground on hawkish Fed expectations

• Gold price registers its longest losing streak since August 2022 in the wake of rising bets for more interest rate hikes by the Federal Reserve.
• Fed officials reiterate that monetary policy will need to stay restrictive for some time to bring inflation back down to the 2% target.
• Fed Governor Michelle Bowman is willing to support raising rates further if the incoming data indicates that progress on inflation has stalled or is too slow.
• Fed Vice Chair Michael Barr said that the important question at this point is how long to hold rates at a sufficiently restrictive level to achieve the goals.
• Cleveland Fed President Loretta Mester also said that risks to inflation are tilted toward the upside and higher rates are needed to make sure the disinflation process continues.
• The US ISM Manufacturing PMI recorded its highest reading since November 2022 and increased to 49.0 in September, marking improvement for the third straight month.
• Moreover, the rise in consumer spending, along with surging gasoline prices, points to higher prices going forward and supports prospects for further policy tightening.
• Markets are now pricing in a 45% chance of another 25 basis point (bps) rate hike this year and the outlook pushes the yield on the benchmark 10-year US government bond to a 16-year peak.
• The US Dollar also advances to its highest level since November 2022 and continues to undermine the Gold price. Bulls fail to gain any respite from a weaker risk tone.

Technical Analysis: Gold price struggles to find any support despite oversold conditions

The Relative Strength Index (RSI) on the daily chart is already flashing oversold conditions, though the lack of any buying interest suggests that the downtrend is still far from being over. That said, it will still be prudent to wait for some near-term consolidation or a modest bounce before positioning for a further depreciating move. Nevertheless, the Gold price remains vulnerable to weakening further towards the $1,800 round-figure mark. Some follow-through selling will expose the next relevant support near the $1,770-1,760 region. On the flip side, any attempted recovery might now confront stiff resistance and remain capped near the $1,830-1,832 horizontal zone. A sustained strength beyond, however, might trigger a short-covering rally and lift the yellow metal to the $1,850 intermediate hurdle en route to the $1,858-1,860 strong barrier.