Gold News: Gold Breakout Stalls as Traders Await Key Fed Rate Signals

Spot Gold Edges Higher as Ceasefire Deal Takes Pressure Off the Fed

The ceasefire extension between the United States and Iran changed the oil picture Tuesday and gold followed from there. Spot Brent crude fell below $80 a barrel for the first time since early March. That drop took inflation pressure off the table and immediately changed where traders think the Federal Reserve goes next.

At 19:20 GMT, Spot Gold (XAUUSD) was trading at $4,340.07 late in the session, up $31.22 or 0.72%, after touching its highest level since June 5 the day before.

The Ceasefire Extension Did the Work

The Strait of Hormuz is open again and gold had its reason to move. President Trump announced an interim agreement Tuesday extending the current ceasefire by 60 days and reopening the Strait to all shipping. That single development did more for gold than any data point this week. The supply disruption premium that had been embedded in energy prices started coming out immediately. Lower oil takes inflation pressure off the table. Lower inflation pressure gives the Federal Reserve less reason to hold rates where they are. Lower rate expectations push Treasury yields down and gold responds. Tuesday that sequence ran exactly as expected.

Does $80 Brent Change the Fed Picture?

Spot Brent crude below $80 is not just an energy story. It is a Federal Reserve story. That level signals a meaningful pullback from the elevated prices that had been feeding inflation expectations for weeks. The probability of a December Fed rate hike dropped from around 70% last week to 59% Tuesday according to CME FedWatch data. That is an 11-point repricing in one session. The 10-Year U.S. Treasury yield fell to 4.422% and the 2-year yield slipped to 4.045%. Buyers showed up for gold almost immediately after the Brent print crossed. Lower yields remove the argument for sitting in Treasuries instead of bullion and the market made that calculation fast.

Federal Reserve Chair Warsh Sets the Tone Wednesday

Gold’s next move depends less on where oil goes from here and more on what Federal Reserve Chair Kevin Warsh says Wednesday afternoon. This is the first policy meeting under Federal Reserve Chair Kevin Warsh and rates are widely expected to hold at 3.50% to 3.75%. The decision is not the event. The press conference is.

The market is positioned for patience. Lower oil and easing inflation give Federal Reserve Chair Kevin Warsh cover to stay on hold without sounding hawkish. But the dollar has been slow to sell off ahead of the meeting and I know why. Traders are not fully convinced that Federal Reserve Chair Warsh’s moderate tone during confirmation reflects his actual policy instincts. If Wednesday’s press conference sounds more hawkish than expected, Treasury yields climb, the dollar recovers, and gold gives back what it gained Tuesday. That risk is sitting right in front of this market and nobody is ignoring it.

Daily Spot Gold (XAUUSD) Technical Analysis

Spot Gold is edging higher late in the session on Tuesday, but the current inside move suggests investor indecision and impending volatility. On Monday, the market gapped higher, but today there was no follow-through, suggesting yesterday’s move was likely short-covering, rather than new buyers. I didn’t really expect to see a lot of buying especially when you could’ve bought gold $300 lower just three sessions ago.

The fundamentals may have shifted slightly favorable, which was one reason for  yesterday’s price surge but not enough to encourage investors to start taking out offers in an aggressive manner. But they may become interested if the price was better. They may be developing an urgency to get long, but at their price only.

The short-term range is $4,023.87 to $4,369.66. 50% of this range is $4,196.76. A pullback into this level would be a normal move. If you ever watch how bottoms are made, you’ll see that the first leg up from a major low is typically short-covering and that new buyers usually come in on a 50% to 61.8% retracement of that first leg. They then attempt to form a secondary higher bottom with $4,023.87 their exit. That’s how counter-trend buyers are likely viewing the market.

Trend traders, on the other hand, are bearish and likely looking for a place to refresh their short positions. That’s where the resistance comes into play. The first key resistance area is the 200-day moving average at $4,454.20. The second is the bull/bear line at $4,481.78. This separates the current bear market from the next potential bull market in my opinion. The third point to watch is the 50-day moving average at $4,572.97. I think that gold has to recover all of these levels to start attracting some of the major buyers who are willing to take out offers.

In summary, aggressive counter-trend traders will be watching for a pullback into at least $4,196.76. Aggressive trend traders, in sell-the-rally mode, will be eyeing areas close to at least the 200-day MA before they start re-entering on the short-side.

 What I’m Watching

Tuesday’s session told me something about the buyers in this market and it was not entirely bullish. Gold gapped higher Monday and there was no follow-through Tuesday. That gap was short-covering, not new buyers stepping in aggressively. You don’t chase gold higher when you could have bought it $300 lower three sessions ago. Real buyers are more patient than that.

The level I am watching on a pullback is $4,196.76, the 50% retracement of the short-term range from $4,023.87 to $4,369.66. Counter-trend buyers are likely eyeing that area for an entry. A hold there sets up a secondary higher bottom with $4,023.87 as the exit. That is how this market builds a real base.

Federal Reserve Chair Warsh changes the setup fast. A softer tone puts gold back on offense and the 200-day moving average at $4,454.20 comes into view as the next target. A hawkish read puts that same level back into play as resistance. The 50-day moving average at $4,572.97 is the level that tells me whether the major buyers are ready to step in. We are not there yet and I am not chasing this move until after Wednesday’s press conference.

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