Gold is currently trading just above the major $1200 psychological support level on Monday, ahead of a busy week filled with central bank decisions and potential geopolitical risks.
The price of gold has fallen sharply since late February as dramatically-increasing expectations of a March rate hike by the US Federal Reserve has weakened demand for the non-yielding asset, while a market environment characterized by persistently elevated risk appetite has diminished gold’s safe-haven appeal.
A small bounce in the price of gold from around the $1200 level occurred on Friday despite a better-than-expected US jobs report that further cemented the near-certainty of a Fed rate hike this Wednesday.
Looking forward, the primary focus for gold traders, as with most other market participants, will be Wednesday’s FOMC rate statement and press conference. In particular, markets will be eagerly awaiting the Fed’s outlook for rate hikes throughout 2017. Any indication of a potentially accelerated pace of Fed tightening going forward could result in resumed pressure on gold prices.
Meanwhile, impending geopolitical risk factors could have a marked positive effect on gold. This week alone will feature: the likely triggering of Article 50 to begin the process of UK/EU separation (Brexit), Dutch elections in which the populist/nationalist candidate is running a close race against the incumbent PM, and the G20 meetings towards the end of the week.
Alongside these factors will be the ongoing political drama in the US under the Trump Administration. Questions and concerns surrounding the administration’s ability to push key economic agenda items through Congress will be pivotal in helping to decide the near-future trajectory of rallying equity markets.
With rising US interest rates continuing to place pressure on the precious metal, but looming global risks threatening potentially to trigger some volatility-induced gold-buying, the price of gold is at or near a critical juncture.
From a technical price perspective, that critical juncture currently lies at the noted key support/resistance around the $1200 psychological level. In the event that a more hawkish outlook accompanies a Fed rate hike on Wednesday, that could help trigger a breakdown below $1200, in which case the next major downside targets are around the $1185 and $1150 support levels. Alternately, any unexpected outcome resulting from impending risk events in the coming week could serve to thwart such a breakdown and result in a significant bounce off support.