Gold Navigates Critical Technical Terrain with Cautious Optimism Gold is displaying hints of maintaining its short-term upward trajectory, albeit with a degree of caution, as momentum is expected to remain subdued until the middle of the week when the most pivotal economic data of the week emerges. All eyes in the financial markets are currently trained on the Federal Open Market Committee (FOMC) rate decision and the accompanying updated quarterly forecasts, offering valuable insights into the committee’s stance on growth, inflation, and interest rates.
According to the Fed funds futures market, the FOMC is all but certain to maintain interest rates at their current levels (99% probability), opting to allow the impact of previous interest rate hikes to filter through the real economy as they continue to adhere to a data-dependent approach.
Gold’s immediate reaction is likely to be closely tied to the performance of the US dollar and US Treasury yields in the aftermath of the FOMC statement, release of updated figures, and the subsequent press conference. The Fed is expected to refrain from revising its estimates of the terminal interest rate, thereby preserving maximum flexibility should inflationary pressures mount further. The recent surge in oil prices further complicates the Fed’s deliberations, reigniting concerns over rising inflation.
Gold’s price action has initiated the week with a modest uptick, putting the 200-day simple moving average to the test along the way. Notably, gold has been forming a pattern characterized by lower highs and higher lows, indicating a narrowing trading range. Immediate resistance hovers around $1937, roughly aligning with the trendline resistance. Meanwhile, support levels can be found at $1915, followed by the swing low at $1901.
Elevated US Yields Cast a Shadow on Gold’s Ascent
US Treasury yields have been on the rise as market expectations mount that the Fed will maintain its policy at restrictive levels for an extended period. Consequently, gold’s upside potential may face headwinds in the lead-up to the FOMC decision. Other central banks, such as the Bank of England and the Bank of Japan, are also slated to announce their interest rate decisions, with the BoJ expected to remain stationary, while markets lean towards a 25-basis-point hike by the BoE on Thursday.
Turning to the weekly gold chart, it reveals signs of a slowdown in the long-term downtrend, with price action breaking above the descending channel, albeit with limited conviction. In a low volatility environment, such breakouts are susceptible to fading. Could the FOMC decision serve as the catalyst needed to propel the precious metal to higher levels?
The silver chart also exhibits a rebound from the swing low around $23.20. A significant challenge for the metal lies in a retest of the 200-day moving average, although market participants may require the catalyst mentioned earlier. Noteworthy levels of interest for silver’s upside potential include the 200 DMA, followed by the $24.65 mark, which remains a considerable distance away.