Gold prices shaded off today after the U.S. Federal Reserve signalled easing its monthly bond purchases by next year and a sooner-than-expected interest rate hike, which could increase the opportunity cost of holding the non-yielding bullion. Yesterday afternoon’s statement from the Federal Reserve’s Open Market Committee (FOMC) was deemed mostly neutral on U.S. monetary policy and actually rallied the gold market after that it fell to the downtrend on the same day. Still now its trading near low,due to the FOMC statement as the Federal Reserve holds back on releasing its plans to reduce its monthly bond purchase for at least another meeting.

The FOMC statement said that the U.S. economy continues to recover from the pandemic, but the rise in Covid cases has slowed the recovery. The statement said that a tapering of the central bank’s bond-buying program (quantitative easing) is on the table for discussion. The delayed tapering plans come as the Federal Reserve also leaves interest rates unchanged at the zero-bound range, as expected. However, the U.S. central bank is still looking to tighten its monetary policies. The Fed said the 2021 inflation forecast is 4.2% and that inflation will remain above the Fed’s target rate of 2.0% until 2024. According to the latest economic projections, it sees the first potential interest rate hike in 2022.

Despite the comments in the monetary policy statement, the central bank committee has downgraded its growth expectations for the rest of 2021. According to updated economic projections, the Federal Reserve sees the U.S. gross domestic product growing 5.9% this year, down from 7% forecasted in June. Economic growth next year has been revised higher to 3.8%, up from the previous projection of 3.3%. The economy is expected to grow 2.5% in 2023, up one tick from June’s estimate of 2.4%. In the first look for 2024, the central bank sees GDP growing 2%.

The U.S. central bank is also paring back its optimism in the labor market. For 2021 the unemployment rate is expected to fall to 4.8%, compared to December’s forecast of 4.5%. In 2023 the unemployment rate is expected to fall to 3.5%, also unchanged from June’s estimate. The U.S. central bank is also forecasting higher inflation pressure. The projections show that the Personal Consumption Expenditures Index (PCE) is expected to rise 4.2% in 2021, up from June’s estimate of 3.4%. Inflation pressures are expected to continue to grow in 2022, with PCE increasing 2.2%, up from June’s estimate of 2.1%. In 2023, the Federal Reserve expects inflation to hold at 2.2%. By 2024 consumer prices pressure are expected to moderate, rising 2.1%.

Core inflation expectations, which strip out volatile food and energy prices, are expected to rise 3.7% this year, up compared to the previous estimate of 3.0%. In 2023, inflation is expected to rise to 2.2%, up from the previous estimate of 2.1%. Inflation is expected to moderate to 2.1% in 2024. 

The troubled Chinese property giant, Evergrande, is still on traders and investors minds, but many believe the situation will not turn into a worldwide contagion and that the Chinese government will not let Evergrande fail. The company said it would make its latest debt payments—at least one of them anyway. The marketplace will continue to keep a close eye on the matter. China’s markets reopened today after a public holiday, with the Chinese stock market a bit weaker but not showing any stress.

Looking forward, Evergrande headlines may entertain gold traders, as well as the preliminary readings of September PMIs. Should China fail to tame Evergrande default and the US activity numbers come in stronger, as expected, gold will have a further downside to track.

XAU/USD 4 Hour Chart:

Support: 1759.4 (S1), 1750.8 (S2), 1736.9 (S3).

Resistance: 1781.9 (R1), 1795.9 (R2), 1804.5 (R3).

US dollar trades to the upside which keeps the yellow metal into downtrend. We expect a bearish trend for XAU/USD.