Talking points: GOLD, US Federal Reserve, Inflation, and Ukraine.

• As markets analyzed the Federal Reserve Commentary, gold prices started to decline.

• The rate increase was anticipated, but maybe less so the blatantly hawkish tone.

• There are subtle hints that the metal may have endured enough pain for now.

On Thursday, gold prices were momentarily pushed to 29-month lows of $1,654/ounce as the US Dollar continued to gain from strong demand for haven assets.

Vladimir Putin’s unprecedented military buildup has kept Ukraine at the forefront of fundamental trade, drawing the expected scorn and hostility from the West and other countries. Although the three-quarter point increase in interest rates announced by the US Federal Reserve on Wednesday was generally predicted, the central bank’s concomitant prognosis may have been even more pessimistic.

As a result, US Treasury rates have increased and are again back at 11-year highs, which is terrible news for non-yielding commodities like precious metals.

Since markets are already debating whether even a recession may be something the central bank would consider the lesser evil if it keeps prices under control, the Fed seemed to accept that below trend growth might be a price worth paying to crush inflation.

Given that gold has, for the most part, been trading much more like a risk asset than any form of haven in recent months, the overall fundamental backdrop for the metal is terrible, with the majority of developed-market central banks also being hawkish and in the mood to hike rates more. The market’s gloss has been significantly reduced by rising rates on government debt markets, and this trend is expected to continue.

THE TECHNICAL ANALYSIS OF GOLD PRICES

On the daily gold price chart, the well-documented downward channel from March 8 is still very much in place.

Over the previous week or two, prices have established a wide range in the middle of that channel. This is constrained to the upside by $1697.45, the peak of the sharp daily decline that began on September 15. The range base is around the $1.655 region, where the bears have been restrained ever since on a daily-close basis. If bulls are to execute a successful attack on the obviously robust channel top, they must convincingly retake the range top and, preferably, keep the market above that level.

However, no such effort seems imminent. In fact, it seems more probable that the range base will be tested again soon. But according to IG’s own client mood data, more than 80% of respondents were positive about the metal’s future prospects, suggesting that the view is more muddled at the moment.

It seems that there is no desire to significantly drop the market from its present levels. But given the unmistakably alarming underlying background, it could be wiser to wait and see how the present range trade develops before investing in this market.