Gold Momentum Could Shift to Upside if Fed Delivers Only as Expected

Gold futures settled higher on Tuesday on late session short-covering and position-squaring ahead of Wednesday’s U.S. monetary policy and interest rate decisions. The move was helped by softer Treasury yields and a rangebound U.S. Dollar that continues to hover just under a 20-year high against a basket of major currencies.

On Tuesday, June Comex gold futures closed at $1870.60, up $7.00 or +0.38%. The SPDR Gold Shares ETF finished at $174.07, up $0.44 or +0.25%.

Gold traders have pretty much priced in a fairly aggressive set of policy moves by the Federal Reserve, which has put the market in a “Sell the Rumor, Buy the Fact” situation. This means gold could rally if the Fed delivers as expected. Prices are likely to fall further if the tone of the Fed’s monetary policy statement and Fed Chair Jerome Powell’s press conference is more hawkish than expected.

Gold could also get support if the Fed or Powell responds to the possibility of a recession by saying the Fed could slow down the pace of its future rate hikes.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart, but Tuesday’s closing price reversal bottom suggests momentum may be getting ready to shift to the upside.

A trade through $1878.40 will confirm the shift in momentum. This could trigger the start of a minimum 2 day counter-trend rally. Taking out $1849.70 will negate the chart pattern and signal a resumption of the downtrend.

The minor trend is also down. A trade through $1921.30 will change the minor trend to up. This will confirm the shift in momentum.

The nearest resistance is a pair of retracement levels at $1897.70 and $1908.10.

Short-Term Outlook

If the tone of the Fed is less-hawkish than expected then look for gold prices to surge into at least $1897.70 to $1908.10.

If the Fed comes out more-hawkish than expected then look for the selling to resume. Taking out $1849.70 will negate the closing price reversal bottom. This could create the momentum needed to challenge the next main bottom at $1824.40.