Gold’s price has remained relatively stable since our last update. In today’s report, we are to discuss the Fed’s interest rate decision next week, which in turn could prove to be a market mover for gold’s price, validity of the negative correlation of the USD with Gold and how various geopolitical issues are progressing. Also we are to provide a technical analysis of the daily chart of gold’s price for a more comprehensive understanding of gold’s behavior.
- The main event for gold traders in the week is expected to be the release of the Fed’s interest rate decision. Fed Fund Futures (FFF) currently imply a probability of 89% for the bank to announce a 25 basis points rate cut on the 10th of December. The same instrument also implies that the market expects the bank to continue cutting in April and September next year, which tends to imply a dovish orientation. Hence should the bank cut rates as expected, we may see the market’s attention being shifted towards the bank’s forward guidance which is to be included in the bank’s accompanying statement, the bank’s new projections, including the new dot plot and Fed Chairman Powell’s press conference. Breaking down the prementioned elements, should the accompanying statement indicate that the bank may take a long recess in proceeding with its next steps, implying a possible on hold position for longer, we may see gold’s price losing ground as such comments may be perceived as hawkish. Also should the new dot plot and the bank’s economic projections imply less rate cuts that expected, we may see once again the precious metal’s price falling. Last but not least, Fed Chairman Powell, is well known to be able to turn the market’s sentiment in his press conference. He has done it in the past and may very well do it again on Wednesday, hence expect volatility for the shiny metal’s price to be maintained for longer and should the Fed Chairman imply a wait and see position, we may see gold’s price losing ground. In general, in indication that the Fed may for a prolonged period refrain from any rate cuts, gold’s price could weaken. On the flip side, any dovish suggestions in the Fed’s forward guidance, could support gold’s price.
- Also on a geopolitical level, the efforts for a peace plan in Ukraine are ongoing. On the one hand, the fact that they are still ongoing tends to be promising, yet the fact that Trump’s deadline has come and gone, does not spell exactly good news. In any case the possibility of a dramatic curtain fall either way could signal volatility for gold’s price. Should the efforts be crowned with success, a scenario that we tend to be cautious to materialise, we may see it weighing on gold’s price while a falling through of the efforts could support gold’s price as market uncertainty could be enhanced. Also the situation in Venezuela should remain under gold trader’s magnifying glass, as an escalation of tensions in the US-Venezuelan relationships could support gold’s price, while a possible easing of tensions could weigh on gold’s price.
- Last but not least, as noted before gold’s price remained relatively stable over the past week, while the USD index which measures the reaction of the USD against a number of its counterparts in the FX market has declined for a second week in a row. Hence we do not see the negative correlation of the two trading instruments being in display currently, as gold’s price has failed to benefit from the weakening of the USD. Furthermore we also note that the substantial rise of US bond yields, both shorter and longer term, over the past week, seems to have failed to materially weigh on gold’s price.
Gold Technical analysis
Since our last update, gold’s price failed to break the 4240 (R1) resistance line and stabilised below it. On the one hand the upward trendline remains intact, continuing to imply the upward potential of the precious metal’s price, while the RSI indicator remains between the readings of 50 and 70, continuing to imply a bullish predisposition of the market. Yet the recent stabilisation of gold’s price in conjunction with the failure of the shiny metal’s price to form a new higher peak tends to imply a sideways motion.
Similar signals come from the narrowing of the Bollinger bands that imply lower volatility for gold’s price, which in turn may allow the sideways motion to be maintained. For a bullish outlook to be revived we would require gold’s price to break above the 4240 (R1) resistance line clearly, and to start aiming if not reaching the 4375 (R2) resistance base, which is an All Time High level for the bullion’s price. For a bearish outlook to be adopted, we would require gold’s price to drop, break initially the prementioned upward trendline in a first signal of an interruption of the upward movement and continue to break also the 4130 (S1) support line clearly and start actively aiming for the 4000 (S2) support level.
XAU/USD Daily Chart
- Support: 4130 (S1), 4000 (S2), 3890 (S3)
- Resistance: 4240 (R1), 4375 (R2), 4500 (R3)