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Gold and Metals on Correction Mode Ahead FOMC Meeting
Gold and Metals on Correction Mode Ahead FOMC Meeting

Gold prices moved higher but ran into resistance as comments from Mario Draghi about the need for additional European stimulus was offset by President Trump describing how unfair it is for the dollar to be gaining traction. It appears that Trump is planning to use tariffs as a weapon against Europe after a deal with China is complete. He does not want the Euro to weaken which would offset any tariffs he decides to levy. Traders await tomorrows Fed decision. Data out of Germany on Tuesday showed that Europe’s largest economy is slipping.

Technical Analysis

Gold prices moved higher but ran into resistance near the February highs at 1,346. Support on the yellow metal is seen near the 10-day moving average at 1,336. Additional support is seen near the 50-day moving average at 1,295. Short term momentum is mixed. The fast stochastic recently generated a crossover sell signal in overbought territory which reflects a potential correction. The relative strength index (RSI) moved higher with price action reflecting accelerating positive momentum. The current reading on the RSI is 71, above the overbought trigger level of 70 which could foreshadow a correation.


Draghi Says Additional Stimulus Could be Needed

The dollar gained traction ahead of Wednesday Fed meeting as ECB President Mario Draghi said additional stimulus is needed if economic conditions do not improve. Draghi noted that the ECB has the capability to further reduce interest rates as well as quantitative easing as part of their arsenal. It appears that Draghi is setting the table for his successor to be able to use additional monetary policy to boost economic growth.  Draghi’s term ends October 31, and he recognizes that the more will likely need to be done.

The German ZEW survey came in softer than expected.  The assessment of the current situation declined to 7.8 from 8.2. The collapse in the expectation’s component, was even more depressing.  It plunged from -2.1 to -21.1.  It is the worst since last November, and it is lower than a year ago.

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