Gold Price Analysis: XAU/USD pulls back to $1830 area amid pre-Fed profit taking

Spot gold (XAU/USD) prices have been under selling pressure in recent trade, dropping from the mid-$1840s prior to the US open to around the $1830 as the Fed monetary policy announcement at 1330GMT looms. A combination of pre-Fed profit-taking and short-term, intra-day technical selling have been cited as the reason for XAU/USD’s recent drop, with gold not receiving any impetus from subdued FX or bond markets, which are both in their typical pre-Fed lull. Starting with the technicans; since last week, gold had been support by an uptrend, but this uptrend broke a few hours back, triggering some technical selling and a drop back to the $1830 support area.

Moving on to the pre-Fed profit-taking; gold has been performing well in recent weeks and is up more than 2.5% from its lows in the $1780 area printed back on the first day of the year. That solid run of recent gains has come despite a US dollar that has been strengthening (over the last two weeks, anyway) and US bond yields, which have remained well support close to multi-month/year highs. The run higher this year in US bond yields (the 10-year is more than 25bps higher on the year already) has come amid increased bets on Fed hawkishness, something that would normally hit gold.

However, sharp equity market downside (since the start of the year) and geopolitical tensions appear to have infused gold with some safe-haven demand. But that doesn’t mean Fed tightening isn't still a threat to gold and it seems as though on Wednesday, traders were eager to book some profit on long XAU/USD positions just in case the Fed hits markets with a hawkish surprise (which would likely be gold negative). In a scenario where a hawkish surprise sends the US dollar and yields surging, key areas of support to watch for gold include last week’s low in the $1805 area, then the annual low just above $1780. In a bullish gold scenario, Tuesday’s highs just above $1850 would be the key resistance to watch.