Gold News: Increased Volatility Looms as Gold Faces the Fed Test

Gold Bid Lacks Conviction Ahead of Warsh

Gold is ticking higher Wednesday on a softer dollar, but the bid has no weight behind it and the market is not treating this as the start of a recovery. Treasury yields are climbing again, oil is firming after Iran fired missiles at U.S. forces overnight, and Chair Kevin Warsh delivers the Federal Reserve’s rate decision at 18:00 GMT followed by his press conference at 18:30 GMT.

The dollar gave gold a reason to catch a bid. It did not give buyers a reason to chase. Tuesday’s session proved what happens when the dollar and yields move in gold’s favor and the metal still cannot hold. Sellers are positioned for the hawkish outcome, and a quiet Wednesday morning is not going to shake them off that trade before Warsh speaks.

Yields Are Rising Into the Decision

The dollar slipped Wednesday but the bond market did not follow it lower. The 10-year Treasury yield pushed up more than one basis point to 4.614% and the 2-year climbed to 4.291%. Gold is getting a bid from one side and pressure from the other, and the yield side has been winning for two weeks.

FedWatch has the probability of a hold near 68% with a 32% chance of a quarter-point hike. September is the bigger number. Roughly 77% odds of an increase are priced for that meeting, and the market has been leaning hawkish since mid-July. Long dollar positioning is crowded because of it, and if Warsh does not deliver the tough message the rate market already assumed, the unwind in the dollar could be fast. Gold would be the first place that money moves.

I’ve seen that setup before though. Tuesday is the reason I am not counting on it. Gold fell even after the dollar and yields reversed lower in the afternoon. The sellers did not need more confirmation to keep pressing the metal. They were already committed. A quieter Warsh helps gold. It does not guarantee buyers show up with any size after what happened 24 hours ago.

Iran Attack Complicates Warsh’s Afternoon

Iranian Revolutionary Guard forces launched multiple ballistic missiles at U.S. forces in the Middle East on Tuesday, U.S. Central Command said. The missiles were intercepted, but oil pushed higher and the energy relief that had been building since Monday evaporated. The diplomatic talks between the U.S. and Iran had started to look like progress toward reopening the Strait of Hormuz. One missile headline erased that assumption and brought the supply risk premium back into crude before the talks could produce anything.

The timing is the problem. Falling energy costs earlier in the week had started to take heat off the inflation story and gave traders a reason to think Warsh could afford to be measured. That window closed Wednesday morning. Warsh now walks into the press conference with crude heading the wrong direction and the Middle East situation proving it can reverse overnight.

Gold needed the energy picture to keep cooling. Instead it is watching crude firm while the market waits for the one person who can change the rate story. That is not the backdrop gold buyers wanted heading into the most important afternoon of the month.

Daily Spot Gold (XAUUSD) Technical Analysis

Spot gold is inching higher Wednesday after recovering from early session weakness. The trend is down because of the lower-top formation, but the secondary higher bottom at $3959.80 suggests the presence of some recent buying.

However, other factors are supporting the outlook for weaker prices. Currently, XAUUSD is trading on the weak side of two short-term retracement zones at $4041.65 to $4072.40 and $4162.36 to $4214.34. Trading on the weak side of the 50-day moving average at $4202.42 is likely exerting the most bearish influence.

While bullish speculators may have joined forces and defended the June 30 bottom at $3942.10 with buying on July 17 at $3959.80, selling could accelerate if Warsh delivers a more hawkish message than expected later today. Sellers could get aggressive and set their sights beyond the two bottoms with the long-term bottom at $3886.46 the next major level. This may be the trigger point for a steep break.

What to Watch

Warsh’s press conference determines whether the rate pressure that has controlled gold for two weeks gets confirmed or starts to crack. Long dollar positioning is crowded and vulnerable to a less aggressive message, but yesterday’s session proved that even favorable conditions in the dollar and yields could not bring buyers back with any commitment. The market needs more than a quiet hold. It needs Warsh to actively walk back the tightening narrative, and oil firming on the Iran missile attack makes that harder with the inflation question guaranteed to come up in the Q&A.

The technicals keep the bearish structure intact. Gold is trading on the weak side of resistance with lower tops established above the market, but the higher bottom near the June and July lows shows buying interest held twice at that level. Whether it holds a third time depends on what comes out of the press conference this afternoon. The market is positioned for the hawkish outcome, and if Warsh delivers it, the support that held twice may not survive the next test.

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