Gold Price Prediction – Gold Slumps as the Dollar Rallies Following Fed Decision

Gold drops on uncertain Fed commentary
David Becker
Gold, Silver Recover Initial Drops, Post Gains on the Day after PCE data
Gold, Silver Recover Initial Drops, Post Gains on the Day after PCE data

Gold prices moved lower on Wednesday in the wake of the FOMC decision to reduce interest rates. As widely expected, the Fed reduced the Fed’s borrowing rate by 25-basis points to a new range between 2% and 2.25%. The Fed also said in its statement that it would immediately half the selloffs of its assets, curtailing what could be thought of as quantitative tightening. There were two decent, both saying that rates should have been unchanged. The dollar surged higher as the yield differential moved in favor of the greenback, which paved the way for lower gold prices.

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Technical Analysis

Gold prices moved lower on Wednesday, dropping as the dollar continued to gain traction. Prices sliced below the 10-day moving average, which is now seen as resistance near the 10-day moving average near 1,421. Target support on the yellow metal is seen near the 50-day moving average at 1,386.Short term momentum turned negative as the fast stochastic generated a crossover sell signal. Medium term momentum is negative as the MACD (moving average convergence divergence) histogram is printing in the red with a downward sloping trajectory which points to lower prices.

In addition to the Fed signaling that this first cut in rates in the last decade was not the first in a trend, the Fed Chair signaled that this was a risk management exercise. European data did little to fight off a stronger dollar. Eurozone reported Q2 growth. GDP came out in line with expectations rising 0.2% quarter over quarter and  1.1% year over year compared to expectations of 1.0%.  The Eurozone also reported preliminary July CPI.  Headline inflation slowed as expected to 1.1% from 1.3% in June, but core slowed more than expected to 0.9% year over year from 1.1% in June.

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