Gold strengthens as USD drops despite hawkish Fed

The Fed minutes released overnight showed policymakers think the central bank should take steps to begin trimming its $4.5 trillion balance sheet.

Gold jumped to $1259/Oz levels, while the USD index fell from the high of 100.91 to 100.30 levels. The rally in gold is slightly surprising as the potential drop in the Fed’s balance sheet size means higher bond yields and a drop in the money supply, both of which are bullish for the yellow metal.

Risk-off in the equities and weak USD

Stocks turned lower after the Fed minutes release, while the USD weakened and that could have pushed the yellow metal higher. Dow Jones traded at least 150 points higher before the minutes were released. However, the gains were erased and the index closed 41 points lower on the day.

Moreover, the minutes also showed the policymakers are worried about the levels in the stock market.

The focus now shifts to Trump-XI meeting. Caution ahead of the ‘main event of the week’ is likely to keep the metal well bid ahead of the weekend.

Gold Technical Levels

The metal was last seen trading around $1257/Oz. A break below $1255.30 (Asian session low) would open doors for $1247 (strong support on 4-hour chart) and $1239 (double top neckline support). On the higher side, only a daily close above $1260 would open up upside towards $1284 (Mar 216 high) and $1300 levels.