- Gold bears are moving as the Fed’s two-day meeting gets underway.
- The bulls could see an opportunity from below in the meantime.
the price of gold fell on Tuesday, as the dollar and yields rose pending the outcome of the two-day meeting of the Federal Open Market Committee that began today. At time of writing, gold is trading at $1,664.30, down 0.68%, losing ground from highs of $1,679.51 to daily lows of $1,660.10.
The opportunity cost of holding zero-yielding precious metals has been wiped out by the sentiment surrounding this week’s series of central bank meetings, with the Fed being the central event. At the same time, the greenback remains near two-decade highs, making USD-priced bullion more expensive for foreign buyers.
The US dollar has been especially buoyant on Tuesday, trading near two-decade highs, as investors held firm on the expectation of another aggressive rate hike by the Federal Reserve. Interest rate futures traders are pricing in an 81% chance of a 75 basis point hike and a 19% chance of a 100 basis point tightening.
This is supporting US yields and the DXY index, which is now not far from 110.79, a level reached earlier this month for the first time since June 2002. Risk-off sentiment has also contributed to the dollar’s rally. given the aggressive tightening path that global banks are on to try to contain uncomfortably high inflation.
Fed Outlook
We expect the Federal Open Market Committee (FOMC) to carry out its third consecutive interest rate hike of 75 basis points, placing monetary policy well above its estimate of the long-term neutral level,” said analysts at TD Securities.
We also expect the Committee to provide more aggressive signals by updating its economic projections and for Chairman Powell to build on his message from Jackson Hole.”
As for Treasury yields, analysts said they should respond to “the size of the rally, the 2023/2024 points and Powell’s tone on further tightening.” Given the positioning of the markets, a “sell the rumour, buy the fact” reaction is possible.
As for the dollar, they say a “buy the rumour, sell the fact” is a tempting move for the dollar, but analysts say they are wary that the message from this meeting will be more aggressive than usual.
Gold Technical Analysis
Looking at the technical outlook, price is approaching a key support zone that could come under pressure from the meeting and the outcome.
The weekly chart shows the prospects for a move lower before the next bullish phase that precedes an extension lower. On the daily chart, the M formation is a reversal pattern and the correction is already underway:
Source: Fx Street
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