“Gold bulls finally got what they wanted when the precious metal hit $2000 per ounce two weeks ago. This milestone was reached after a 19-month wait – the last time gold traded so high was at the height of the COVID-19 pandemic.

Now the bulls may have to wait another two months, or even longer, before gold tries to break this level again.

This is evidenced by the extremely hawkish attitude of the Federal Reserve (Fed) leaders, including Chairman Jerome Powell himself. They are planning the most aggressive interest rate hike in two decades to combat inflation, which has accelerated to its highest levels in 40 years.

Gold has already started to react little by little to the Fed’s hawkishness, with COMEX futures prices falling from a March 8 high of $2078.80 below $1920 by Wednesday’s Asian session.

If you doubt that clouds are gathering over the precious metal, you only have to look at the 10-year U.S. Treasury yield, which has started to rise with redoubled vigor in recent days, targeting May 2019 highs. The fact that Treasury yields and the price of gold tend to move in opposite directions has long been common knowledge.

Gold spot prices – daily timeframe

Charts courtesy of skcharting.com

The 10-year bond yields briefly fell after the Fed raised the interest rate by only 25 basis points a week ago (the first rate hike since the pandemic). Yields remained under pressure until Powell unexpectedly went on the attack this week.

In a speech to the National Association for Business Economics on Monday, Powell removed words like “patient” and “flexible” from his vocabulary and instead used the phrases “without delay” and “more aggressively” when commenting on the upcoming rate hike.

Speaking of Powell and the members of the Federal Open Market Committee (FOMC), the main issue for them now was the 50 basis point rate hike. According to Goldman Sachs, the central bank may implement two such increases in a row at meetings in May and June. There will be a total of six more FOMC meetings before the end of the year, and Powell indicated that the Fed could raise rates at each of them.

Gold spot prices – weekly timeframe

Remarkably, Powell gave a categorical answer to the question about what could prevent the Fed from raising the rate by 50 basis points – “nothing”.

Thus, the Fed chairman has taken a diametrically opposed position. Just two weeks ago, it seemed that he was seriously concerned about the situation in the economy amid strong worries about the consequences of the Russia-Ukraine conflict. The last time Powell’s position changed so dramatically was when he stopped using the term “transitory” to describe inflation late last year. Back then, he had been downplaying the significance of inflationary pressures for months.

Now, perhaps not surprisingly, the Fed chairman is beginning to recognize its reality.

U.S. GDP grew 5.7% last year, the fastest pace since 1984. But inflation, as measured by the Consumer Price Index, rose even more strongly in 2021, namely 7%, the highest since 1981. Since then, the CPI has continued to rise at an unbridled pace, with annual inflation at 7.5% in January and 7.9% in February.

What’s really surprising is investors’ willingness to see the federal funds rate hit the 2% level by the end of the year, notes Craig Erlam, an analyst at online trading platform OANDA.

“This is an incredible, aggressive tightening cycle that will mean a 50 basis point rate hike at at least one meeting, which hasn’t happened in over 20 years,” Erlam notes.

The stock market has rallied in five of the last six sessions against this backdrop. The S&P 500 Index has gained a total of just over 4%, thanks largely to rising bank stocks, for which an interest rate hike is positive news.

Gold usually does well when there are fears about the economy and geopolitics. So does it have a chance this time, given the Fed’s extremely hawkish attitude and the bull market in equities?

In which direction will prices move up to and including April and then in May and June, when Goldman’s predictions of two 50 basis point rate hikes may come true?

According to Sunil Kumar Dixit, chief technical strategist-analyst at skcharting.com, it would be logical to expect a drop to $1800, or maybe lower, and that’s not an exaggeration.

Focusing on spot prices, which were just under $1919 at the time of writing, Dixit notes that the downward trajectory for gold was delineated when prices failed to hit a high of $2070 and fell for the third consecutive week.

He says the persistent reluctance of the bulls to chase the bullish trend is mainly due to a potential bearish double-bottom formation at $2074 and $2070, which is clearly visible on the monthly and weekly timeframes.

“A break below $1895 could see gold attempt to sneak into the $1850-1825 area, with the 50-week exponential moving average and 100-week simple moving average converging at the second level,” Dixit notes.

The oversold stochastics on the daily timeframe, which is at 14/17, may support a short-term rebound to $1935-1955, and if prices manage to stay above this area, the recovery may continue towards $1985-2010

“Bulls” may also use the short-term correction in gold as an opportunity to buy at a significant discount. They may no longer have such an opportunity if the events in Ukraine and their geopolitical and economic implications prove to be a more influential factor for the market than a Fed rate hike.

In such a scenario, gold could consolidate above $2,000 from mid-June and get to record highs of $2121.70 from August 2020 COMEX futures and $2073.41 for spot prices.

“If prices fall to $1825 or even $1800 now, this could be the last entry opportunity before the next major upside wave begins, initially targeting $2150 and $2500 in the next two quarters,” Dixit points out.