Gold extended its decline but is still holding above the $4,000 zone going into Wednesday’s Fed decision. Investors are assigning a 35% chance of a hike at this gathering, and a stronger US dollar has added to the pressure. A dovish disappointment could lift the metal toward $4,200, while a close below $4,000 would put $3,715 in view.
Gold extended its slide, yet the metal remains above the psychological round zone of $4,000 and above the prior downtrend line drawn from the high of March 2. The pullback leaves Wednesday’s Federal Reserve decision as the next test for the metal.
The move began with a positive gap on Monday amid headlines about a pause in US-Iran hostilities, but the metal ended that day lower. It surrendered against a strong US dollar once again, which may have benefited from speculation of a hawkish Fed on Wednesday.
Traders price a 35% chance of a hike
Investors are already assigning a 35% chance of a hike at this gathering. A 25bps reduction is fully priced in for September, while another one is expected for March.
Those odds rest partly on energy. US President Trump said on Monday that the US was having “good talks” with Iran and that there was a chance of a deal to resolve the conflict. Even so, the renewed hostilities in July pushed oil prices up as much as 40% before the latest pullback, which implies upside risks to the July inflation prints.
The rate path sets gold’s next leg
Even if the Fed does not act at this gathering, any hints corroborating the notion that it could do so in September are likely to add further fuel to the dollar’s engines as Treasury yields could drift higher. Gold may come under renewed pressure at the same time, because the opportunity cost of holding the metal increases.
$4,200 above, $3,715 below
The bar for matching such hawkish expectations may be very high, so some investors may not get the outcome they desire. Any disappointment could allow the metal to bounce from the $4,000 mark and aim for the $4,200 zone. Nonetheless, a convincing break above that zone may be needed before a bullish trend reversal starts being examined, and such a move may pave the way towards the $4,345 resistance territory.
Should gold instead fall and close below $4,000 after the Fed decision, the bears could put the $3,715 zone under the microscope.
Source: Investing.com
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