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Gold falls as Fed policymakers dim outlook on rate cuts

A weekly market summary for gold, Apr 29-May 3

US FOMC officials voted unanimously to keep interest rates steady at the two-day meeting (Apr 30-May 1) this week. The US central bank withstood political pressure from the Trump administration and downplayed potential rate cuts in 2019. The Fed has cited strong US economic activities (Q1 GDP: 3.2 per cent) and tight labour conditions to be roughly symmetric for its longer-term objective.

The US dollar strengthened consequently from the Fed's stance whilst extending bearish pressures on gold, the non-interest bearing asset. Strong risk sentiments have curbed safe haven demand in Q2 as investors deliberate opportunity cost on the precious metal.

What should investors look out for in the longer term?

Better-than-expected economic releases along with signs of progress in US-China trade negotiations have bolstered risk sentiments significantly in Q2. The precious metal has experienced significant headwinds as investors curb safe haven demand in favour of riskier assets. A neutral US Fed policy has further raised US dollar prospects as FOMC officials diminish market expectations on interest rate cuts in 2H 2019. Gold as a non-interest bearing asset will struggle to establish a firm foothold as traders pivot towards greenback vigour and an extended stock rally for the current quarter.

Technical Analysis for Spot Gold (XAUUSD)

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The precious metal revisited 4-month lows as bearish biases pervade price action for the current term. A strong negative momentum dragged gold prices lower towards crucial support level of US$1,265.00 after considerable headwinds was experienced at US$1,289.00. Though strong support has been sighted on previous occasions (US$1,265.00), the bearish trend overview remains valid as gold bulls fail to establish a foothold above US$1,302.00. A continuation of the negative trend scenario will take gold prices towards the next main station of US$1,245.00 in the near term.

Weekly Market Assessment: Mildly Bearish
Key Resistance Level (1): 1,278.00
Key Resistance Level (2): 1,288.00
Key Support Level (1): 1,265.00
Key Support Level (2): 1,245.00

  • The writer is an investment analyst at Phillip Futures

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