Gold tentatively backs off from highs ahead of Fed

<p>Gold backed off from its latest highs but maintained much of its recent strength on Wednesday ahead of the Federal Reserve’s afternoon FOMC statement, where […]</p>

Gold backed off from its latest highs but maintained much of its recent strength on Wednesday ahead of the Federal Reserve’s afternoon FOMC statement, where market participants will be closely watching for clues as to the anticipated pace of rising interest rates after last month’s rate hike.

Since that December rate hike, renewed volatility has shaken global equity markets and concerns over worldwide economic conditions have deepened, especially with regard to China. These circumstances have adversely affected financial markets around the world, helping to push up the price of gold, and are likely to put into doubt the Fed’s previously more hawkish intentions for the pace of rate hikes this year.

With respect to gold, if today’s Fed statement is interpreted as being even more dovish than expected, the US dollar could slide and the price of gold could surge above its new 13-week high of $1122 that was just established a day earlier on Tuesday. Conversely, an FOMC statement that maintains the relatively hawkish tones of December’s Fed meeting could lead to continued strength for the dollar and a downside reversal for gold.

For more than a month, the price of gold has been in a choppy climb that has lifted the metal off December’s five-year lows around the key $1050 support level. Price action around that support level formed a double-bottom technical pattern late last year that suggested at least a tentative bottoming for gold prices. This bottoming was supported by heightened volatility in the equity markets in the beginning of 2016 that has attracted some asset flows to the perceived safety of gold.

Currently, the price rise has just reached the key 200-day moving average, which is acting as a tentative resistance factor. In the event of a more-dovish-than-expected FOMC statement that should help to support the price of gold, a breakout above the 200-day moving average could target higher recovery levels around the $1140 and then $1170 resistance objectives. Any relatively hawkish statement, in contrast, could lead to a downside reversal underneath the 200-day average, in which case key support resides around the $1080 level.

Gold Daily Chart


Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (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.