Gold struggles to shine ahead of central bank decisions

<p>September 20, 2016 – The Bank of Japan (BoJ) and US Federal Reserve are slated to reveal their monetary policy decisions on Wednesday. Meanwhile, the […]</p>

September 20, 2016 – The Bank of Japan (BoJ) and US Federal Reserve are slated to reveal their monetary policy decisions on Wednesday. Meanwhile, the price of gold has been under consistent pressure in the past several weeks as its safe haven appeal has eroded in the face of relatively well-supported global markets. Despite this pressure, the upcoming central bank decisions could make a significantly positive impact on the price of gold, particularly if a dovish-talking Fed refrains from raising rates, as widely expected, and the US dollar drops as a result. In addition, any more BoJ easing further into negative rate territory could also help to support gold.

Against this backdrop, the price of gold has dropped to a key support level at a major rising trend line that extends back from the $1050-area multi-year lows of late last year. This trend line has been tested and respected on several occasions, providing strength to gold’s uptrend of the past nine months. As of Tuesday, price has tentatively turned back to the upside from this trend line support after a week and a half of falling sharply.

Could Wednesday’s central bank decisions serve as catalysts for a rebound off support for gold and a continuation of the entrenched uptrend? Most importantly, this would likely be contingent upon the Fed refraining from raising rates as well as taking on a more dovish-than-expected tone, which, in turn, should place some immediate pressure on the US dollar. If this occurs, there could likely be a gold rebound off trend line support, with the next major upside targets at the $1350 and $1375 resistance areas. In the event of more hawkish-than-expected talk from the Fed, however, a gold breakdown below the support trend line could occur, in which case the next major support area to the downside is around the $1250 level.

Gold Daily Chart

 

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.