The gold bulls are finishing off the week on the right foot. Spot gold prices are higher today by $8 per ounce, putting spot prices just under the $1800 level at $1797.50. With the market ending the trading week at a four-month high, the outlook for gold may be evenly split between the bulls and the bears. A key test for gold may be seen as soon as Monday. The bulls will almost certainly try to test the $1800 level now that the market is close. If the bulls are able to produce a close above this key level, the road may be open to further upside. If the bulls fail, however, the bears may regain control of the market rapidly and try to take prices back to the $1700 level.
This Wednesday, the Federal Reserve will announce its decision on interest rates. After some commentary about slowing the pace of rate hikes, it is widely expected that the Fed will raise rates by 50 rather than 75 points on Wednesday. Likely far more important than the rate hike itself, however, will be the updated Fed projections. While this week will determine monetary policy through the end of the year, markets may now be far more concerned with how the Fed may approach policy as 2023 gets underway. If the Fed does in fact take a slower approach to rate hikes, it may provide gold and stocks with a needed boost. If inflation remains robust, however, and the Fed does not slow the pace of hikes, it could lead to not only lower stocks and gold but also to an economic recession.
The $1800 level is the near-term key for the gold bulls. After acting as support previously, the $1800 level will now likely act as resistance. If the bulls can retake this level on a closing basis, it would likely encourage more bulls to step into the market to take advantage of upside momentum. This could lead to a fresh trading range for gold higher than the previous range and trending to the upside over time. A failure at this level by the bulls could be catastrophic. A failed attempt to take out resistance at $1800 could send a signal to the bulls that the market does not have the underlying strength to move higher, and could give them reason to exit the market rapidly. This could, in turn, lead to a robust and rapid decline in gold that could see the market give back $100 or more very quickly.
In our view, the gold market may very well produce a close above $1800 in the week ahead. The market could see some increasing volatility as the Wednesday Fed day approaches, but should stay on a sideways to higher trend. Once the Fed day is over, the market could then spend the rest of the year trading sideways to higher in lackluster, uninspiring price action.