Gold prices edged lower on Wednesday, with the spot XAU/USD approaching a critical short-term support as investors ponder the probability that the US Federal Reserve will pause its tightening cycle when the board meets next week.
At the time of writing, the XAU/USD pair is trading at the $1,940/oz area, down over 1% on the day, and challenging the 100-day simple moving average (SMA) support.
The Bank of Canada's unexpected benchmark rate hike of 25 basis points on Wednesday has cast doubts about the Federal Reserve's pausing rate hikes. While the odds of no change are still high, they have decreased from over 75% to 64%, according to the CME FedWatch Tool.
Earlier this week, the Reserve Bank of Australia also surprised markets with a rate increase against expectations of no change.
Hawkish expectations lifted US yields across the curve, supporting the dollar's advance and hence, weighing on the yellow metal and pushing XAU/USD towards the lower end of its May-June range. The 10-year US Treasury note currently yields 3.78%, while the 2-year note offers 4.56%.
From a technical perspective, the yellow metal holds a negative short-term bias according to indicators on the daily chart, while the price has fallen below the 20-day SMA and is struggling to sustain above the 100-day SMA, which is acting as a dynamic support level of around $1,940. A break below the latter would add bearish pressure, with gold price targeting the $1,900 area then.
On the flip side, the following resistance levels could be found at the 20-day SMA at $1,970 and the $2,000 mark ahead of the record highs in the $2,070-75 zone.