Gold News: Gold Fades From High as FOMC and PCE Risk Cap Oil-Led Bid

Gold Catches a Bid on Lower Oil but Fades Before the Fed

Gold rallied early Monday after crude oil broke sharply lower on the third consecutive night without U.S.-Iran strikes. The metal traded as high as $4,116.18 before buyers pulled back ahead of Wednesday’s FOMC decision and Thursday’s PCE report. The retreat from the high tells you where the conviction is. Lower oil and lower yields gave gold an opening but nobody is chasing prices higher with Warsh’s press conference two days away and rate-hike odds still elevated.

At 14:51 GMT, Spot Gold is trading $4,072.15, up $19.30 or +0.48%.

The Iran pause is not a settlement and the FOMC is not a formality. Gold is stuck between a crude pullback that helps and a rate outlook that has not changed.

Oil Gave Gold Room but Not a Reason

WTI futures dropped as much as 8% near $82 Monday after Iran said it would halt attacks as long as the United States does the same. Washington paused its bombing campaign after concerns over available targets and the draw on military supplies. The 10-year Treasury yield slipped toward 4.65%, the 2-year moved near 4.32% and the 30-year eased toward 5.14%. The dollar index was little changed.

That combination gave gold its early bid. The pullback from $4,116 showed it was not enough to hold buyers at those levels. The Strait of Hormuz remains the issue for crude and another attack or new threat to tanker traffic puts the supply premium right back into oil. Gold traders who bought the opening Monday morning understand they are one headline away from giving it back.

FOMC on Wednesday Controls the Week

Markets are pricing about a 66% chance the Fed holds Wednesday and a 77% probability of a quarter-point increase by September. The consensus expects rates unchanged at 3.75% but the statement and Warsh’s press conference carry more weight than the decision itself. A hold paired with tougher language on energy costs and inflation keeps yields and the dollar pointed higher and gold pays for it. A hold without any escalation in the inflation message gives buyers room to retest Monday’s high.

Gold is choppy because lower oil helps in the short term and the Fed can turn that relief into another rate-driven selloff by Wednesday afternoon. The market does not know which one it is getting and the price action Monday showed both sides of that uncertainty in a single session.

PCE on Thursday Gets the Second Look

Second-quarter GDP and June personal income and outlays land at 12:30 GMT Thursday. The PCE price index inside that report either reinforces Warsh’s message or gives the bond market a reason to push back against the hike trade. A firm GDP number and hot core PCE keep the inflation problem alive and make it harder for gold to extend Monday’s recovery. A softer reading pulls the rate conversation back and gives buyers a better setup heading into the end of the week.

Spot Gold (XAUUSD) Technical Analysis

 

Spot gold is edging higher early Monday, but still trading inside last week’s range. The price action suggests that while the lower oil prices story is supportive, the main price driver this week is likely to be the FOMC decision and Warsh’s comments.

The main trend is down according to both the daily swing chart and the 50-day moving average. But the swings are compressing into an elongated wedge and the moving average is dropping fast, suggesting impending volatility. Helping to hold this pattern is a pair of retracement zones.

The nearest swing chart top is $4166.13. The second is $4202.71. The nearest main bottom is $3959.80. The major swing bottom is $3942.10. The long-term bottom is $3886.46.

Retracement zone support is $4072.40 to $4041.65. The resistance zone is $4162.36 to 4214.34. This is followed by the 50-day moving average at $4221.46.

In my opinion, the longer prices stay compressed, the more likely we’re going to see a breakout move. The size and duration of the move will be determined by the amount of trading volume in that direction.

Speculative buyers are likely leaning on the swing bottoms for support, while they play the waiting game for an upside breakout. They are likely waiting for an anticipated breakout of the 50-day moving average at $4221.46 that may or may not happen. This move would offer the best opportunity for bullish traders since the nearest resistance levels are $4382.62 and the 200-day moving average at $4493.83.

Bearish traders are likely leaning on the 50-day moving average to preserve the downtrend. They may be looking to drive prices through the main bottom at $3959.80, then the major swing bottom at $3942.10, with the long-term bottom at $3886.46 the next downside target.

What to Watch

Gold is trading the oil pullback Monday but the FOMC on Wednesday and PCE on Thursday are the events that determine whether the early bid survives the week. The Iran pause helped crude and crude helped gold but the war is not over and one headline reverses that chain fast. Warsh’s tone on inflation Wednesday afternoon is what breaks the compression gold has been trading in.

The swings are compressing into a wedge and the 50-day average is dropping fast, which means the breakout is coming and the volume behind it will set the size of the move. Buyers are leaning on the swing bottoms and waiting for a shot at the 50-day average. Sellers are defending that average to preserve the downtrend. Wednesday’s decision and Thursday’s data are the catalysts most likely to force the resolution.

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