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Gold Prices Hover Below Key Resistance Ahead of FOMC Meeting

  

Talking Points:

  • Gold prices at risk of deeper correction ahead of FOMC meeting.
  • However, hint at earlier-than-expected hiking cycle may counterintuitively boost anti-fiat bullion.
  • The technical outlook for the popular precious metal remains bullish, as prices consolidate within a bullish pennant formation.

Gold prices have traded in a frustratingly tight $100 range over the last four months, despite a fundamental background of rising price pressures that would generally see anti-fiat bullion outperform. Historically, gold has been investors’ preferred hedge against inflation, epitomized by its tremendous 2,000% surge during the Great Inflation of the 1970s. However, this current inflation scare has yet to ignite a meaningful move higher for the popular precious metal. Could it be that market participants agree with the Federal Reserve’s view that price rises will prove to be “transitory”? Unlikely when one looks at Fed Funds futures, with traders pricing in a 63% chance that the FOMC will hike rates by June next year, a full year ahead of the central bank’s proposed timeline.  

Source – CME

This relatively hawkish pricing by rates markets may be behind gold’s underperformance in the current environment, given rate hikes lead investors away from non-yielding assets such as bullion. That being said, a look back at the Fed’s last hiking cycle in 2015 paints a different picture, with gold actually bottoming as the central bank raises its target for the Fed Funds rate for the first time in just under a decade.

Gold Price vs Fed Funds Rate

Chart prepared by Daniel Moss, created with Tradingview

With that in mind, a shift by the Fed to hike rates earlier than expected may counterintuitively buoy gold prices through the continued flattening of the yield curve. Short-term rates move higher on the prospect of interest rate rises, while long-term rates have slipped lower recently on the back of growth concerns. Should this scenario continue, a more meaningful upside push could be on the cards for gold in the near term.

Gold Price Weekly Chart – Bullish Pennant in Play

Chart prepared by Daniel Moss, created with Tradingview

The long-term technical picture for gold prices remains skewed to the upside, as price carves out a bullish pennant formation on the weekly timeframe.

A break above a key area of confluence at pennant resistance and the August high (1834) is needed to validate bullish potential and carve a path for buyers to challenge the record high set in August of 2020 (2075).

Alternatively, slipping back below key support at 1770 could precipitate a pullback to pennant support and the September low (1765).

Gold Price Daily Chart – Double Bottom Neckline in Focus

Chart prepared by Daniel Moss, created with Tradingview

Zooming into the daily chart reinforces the bullish outlook as prices eye a test of the neckline of a Double Bottom pattern carved out between August and September of this year.

A daily close above neckline resistance at 1835 would probably intensify buying pressure and open the door for price to climb to the implied measured move just shy of 1950.

However, a convincing break of the short-term uptrend extending from the monthly low may ignite a short-term correction to psychological support at 1750.