Gold News: XAUUSD Gets Fed-Week Relief, but Inflation Keeps Bears in Control

Fed Week Is Giving Gold Shorts a Reason to Lighten Up

At the start of the new week, gold traders are seeing some relief due to weaker oil prices. Nonetheless, the move looks more like positioning rather than a trend-changing event as traders continue to deal with inflationary concerns. Additionally, it’s Fed week, so a little lightening up on short positions can be expected before the central bank’s interest rate decision on Wednesday.

Gold traders aren’t too concerned about a rate hike at this meeting if you’re tracking the October FedWatch Tool. It is indicating that the probability of the Fed holding rates steady is 90.6%.

The December meeting rate hike odds are more interesting. They show a 72.4% chance of one 25-basis-point rate hike and a 7.3% chance of two rate hikes. The chance of the Fed keeping rates unchanged at the December FOMC meeting is 20.3%.

Going into the Fed decision, I think that traders are looking at two scenarios. A surprise rate hike in October would likely be bearish for gold. It would probably send prices below the psychological $4000 level. The second scenario would be the Fed’s outlook on inflation. Let’s face it, the inflation numbers have been higher, but pretty tame. But if crude oil stays above $100 per barrel for longer, that outlook could flip pretty quickly and the Fed would have to act accordingly, especially since it has a 2% inflation target.

PCE Is the First Test of the Fed Trade

Wednesday’s PCE inflation report should also be watched closely since it comes out ahead of the Fed policy decision. The report is expected to show Headline PCE Inflation at 3.7% year-over-year and Core PCE Inflation of 3.1% year-over-year.

An extreme jump in this report may be hard for Fed members to ignore, perhaps even shifting the vote toward an October rate hike.

Weekly Spot Gold (XAUUSD) Technical Analysis

Spot gold is slightly higher on the weekly chart early Monday as buyers stepped in just ahead of Friday’s low at $3975.65. That low was above the June bottom at $3942.10.

The main trend is down according to the weekly swing chart. A trade through the weekly swing bottom at $3942.10 will signal a resumption of the downtrend. The main trend will change to up on a trade through the swing top at $4697.11.

The minor trend is also down. A trade through $4217.39 will change the minor trend to up. This could shift momentum to the upside.

The short-term range is $5602.23 to $3942.10. Its retracement zone resistance is $4772.16 to $4968.06.

The minor range is $3942.10 to $4697.11. Its 50% level at $4319.60 and another minor pivot at $4336.38 are the nearest resistance.

The long-term range is $2536.85 to $5602.23. The market is currently testing its 50% to 61.8% retracement zone at $4069.54 to $3707.82. It held once before at $3942.10.

On the upside, prices are still being capped by the 52-week moving average at $4451.15. This indicator is just below $4481.78, or the level which started the bear market.

Weekly SPDR Gold Shares (GLD)

The SPDR Gold Shares ETF is expected to open slightly higher on Monday as it tracks the spot gold contract. The main trend is down according to the weekly swing chart. A trade through the swing top at $429.42 will change the main trend to up. Taking out the swing bottom at $363.32 will signal a resumption of the downtrend.

The short-term range is $363.32 to $429.42. Its 50% level at $396.37 is potential resistance.

The intermediate range is $509.70 to $363.32. Its retracement zone resistance is $436.51 to $453.78.

The long-term range is $236.13 to $509.70. The ETF is currently testing its retracement zone at $372.92 to $340.63. This zone held in June at $363.32, producing a rally to $429.42. Trader reaction to it could determine the near-term direction of the ETF.

GLD is also trading on the weak side of the 52-week moving average at $408.64. This indicator is another trend indicator and resistance.

What to Watch

Spot Gold (XAUUSD)

The bear market indicator at $4481.78, the 52-week moving average at $4451.15 and the downtrend on the weekly main swing chart, all support my bearish bias. A failure to break through $3942.10, followed by a sustained move over the pivots at $4319.60 and $4336.38, will weaken my outlook.

SPDR Gold Shares (GLD)

With the main trend down according to the main swing chart and the ETF trading on the bearish side of the 52-week moving average, my bias is to the downside at the start of the week. My outlook will strengthen if potential support at $372.92 fails and sellers take out the swing bottom at $363.32. My outlook will begin to weaken if buyers can overcome the pivot at $396.37 and will likely flip to the upside if traders overtake the 52-week moving average.

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