Gold Higher As Fed Decision Looms
The gold market finished the session higher on Monday by nearly $10 per ounce. The upside in the market was relatively quiet, however, and will likely remain that way until the Fed announces its decision on rates Wednesday afternoon. The central bank is widely expected to hold rates steady this week while maintaining its recent hawkish bias. A rate hike this week could send markets into a tizzy, while an overly dovish press conference could also do the same.
Markets will pay close attention to the Fed’s press conference following the announcement on rates. The central bank will, in all likeliness, maintain its hawkish stance on rates and could suggest more hikes will be seen in the months ahead. On the other hand, the Fed could also pivot and suggest a more dovish course of action ahead. Whatever the Fed does or does not do, markets may see some volatility post-announcement and gold could see some significant price appreciation if circumstances warrant.
Interest rates and the Fed are not the only major potential drivers of gold prices right now, either. There has been more and more talk of the dollar and its potential end looming. The dollar has already lost the majority of its value in recent decades. The currency was once viewed as the global reserve currency of choice. While it maintains that view today, its hold on the top position has become increasingly loose in recent years. Russia, China, and other nations have all taken steps to move away from the dollar for transacting crude oil and other commodities, and that trend is likely to continue.
A major breakdown of the dollar in the years ahead could see gold run into fresh all-time high territory and do so quickly. The gold bulls may simply be biding their time until the paper currency finally does collapse.
The gold bears have control of the market on the daily chart at this point. The four-month-old downtrend remains in place and the bulls have considerable work to do to neutralize it. The September highs around $1,980 are the first likely bullish target, followed by the $2,000 level. A solid close above $2,000 may signal to other bulls that the market is headed higher and could draw more buyers in. The bears, on the other hand, are targeting last Friday’s lows around $1,920 and then the $1,900 level. A breakdown below $1,900 would likely attract more short sellers into the market and could potentially fuel a move lower toward $1,800.
The bulls will likely need a fresh catalyst to stage a sustainable rally above the $2,000 area. This catalyst could take the shape of a dovish Fed or rate decreases, a major dollar collapse, or a recession. The market may remain range-bound until a new catalyst presents itself and may not do much of anything in the weeks and months ahead.