Gold faces an important few days as three major central banks announce their respective policy decisions. All bar one is expected to make a rate change and that’s the Federal Reserve today. According to the to the CME’s FedWatch tool the probability of a 25 basis point rate increase is 96%, which means it is more or less already priced in. That may help explain why the dollar has stopped going up since the end of May. Market participants will be looking for signs that the Fed is growing increasingly wary of rising price pressures, especially after May CPI hit a 6-year high of 2.8% year-over-year as we found out on Tuesday. Any hawkish signs in the FOMC statement, dot plots or remarks from the Fed Chair Powell could lead to an increase in the probability of two further rate increases before the year is out. This outcome may well support the dollar and undermine buck-denominated gold. That’ll be at least until Thursday’s policy decision from the European Central Bank. Several officials from the ECB have talked up the prospects of ending QE this year owing to concerns over inflation. If the ECB does turn out to be hawkish than expected, then this may support the EUR/USD exchange rate and potentially the positively-correlating gold prices (in dollar terms), too. Similarly, if the Bank of Japan appears to be less dovish than expected on Friday then this too may underpin the yen in the expense of the dollar, which, in turn, may underpin gold. So, just because central banks may be turning hawkish, it doesn’t necessarily mean gold will go down (because of the indirect impact of the exchange rates). That being said however, rising interest rates or expectations thereof are usually not good for noninterest-bearing assets like gold and silver. Thus, it remains to be seen whether gold will be able to find buyers this week. Ahead of these central bank decisions, the yellow precious metal was holding inside a tight range below $1300 and thus below the pivotal $1307 level. The latter was a previous support-turned-resistance level and corresponds with the 200-day moving average. A clean break above this level would be a prerequisite therefore for sentiment to turn bullish; more so if gold goes on to break its most recent swing high at $1325. Until and unless that happens, the technical bias remains bearish. A clean break below support at $1293 would strengthen the bearish case and could potentially trigger significant follow-up technical selling.

Previous articleGold Steady as Federal Reserve in Focus
Next article(FED) Federal Reserve Issues FOMC Statement
DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.