Gold Prices Trade Narrowly Ahead of Federal Reserve Decision and Policy Outlook

Key Takeaways

• Gold prices trading narrowly before Federal Reserve decision and policy outlook
• Bullion rallied up to 10% to a one-year high due to safe-haven demand, but prices have weakensed since the Credit Suisse rescue
• US banking system stabilizing, but additional measures may be needed
• Investors focused on how Fed communicates forward guidance, higher dots plot could signal still-hawkish Fed committed to fighting inflation, which could undermine gold prices

Overview

On Wednesday, gold prices traded within a narrow range as some investors adopted a wait-and-see approach ahead of the U.S. Federal Reserve’s interest rate decision and policy outlook.

At 06:36 GMT, June Comex Gold is trading $1961.90, up $3.60 or +0.18%. On Tuesday, the SPDR Gold Shares ETF (GLD) settled at $180.38, down $3.46 or -1.88%.

Gold Rally Fades on Credit Suisse Rescue Despite Yellen’s Warning

Gold had recently rallied by as much as 10%, or about $180, to a one-year high on safe-haven demand following the collapse of U.S.-based Silicon Valley Bank and a crisis at lender Credit Suisse. However, prices retreated after the rescue of Credit Suisse whetted risk appetite, although financial system uncertainties remained.

Treasury Secretary Janet Yellen cautioned that if smaller institutions experience deposit runs that could lead to contagion, further measures may be necessary, despite the stabilization of the U.S. banking system.

Fed Forward Guidance in Focus: Higher Dots Plots May Undermine Gold

As the focus shifts to the Fed’s decision, the market is currently fixated on how the Fed communicates its forward guidance.

A still-hawkish Fed, determined to fight inflation, could undermine gold prices with higher dots plots as bullion is considered a hedge against inflation but loses appeal due to increased opportunity cost when interest rates rise.

Daily June Comex Gold Technical Analysis

The main trend is up according to the daily swing chart. A trade through $2031.70 will signal a resumption of the uptrend. A move through $1830.20 will change the main trend to down.

The minor trend is also up. A trade through $1906.00 will change the minor trend to down. This will shift momentum to the downside.

The minor range is $1906.00 to $2031.70. The market is currently trading on the weak side of its pivot at $1968.90, making it resistance.

The main range is $1830.20 to $2031.70. Its retracement zone at $1931.00 to $1907.20 is the primary downside target.

Daily June Comex Gold Technical Forecast

Trader reaction to the minor pivot at $1968.90 is likely to determine the direction of the June Comex Gold futures contract on Wednesday.

Bearish Scenario

A sustained move under $1968.90 will indicate the presence of sellers. If this creates enough downside momentum then look for the selling to possibly extend into $1931.00 to $1907.20.

Since the main trend is up, look for buyers to show up on a test of this area. If $1907.20 fails then look for a possible acceleration to the downside.

Bullish Scenario

A sustained move over $1968.90 will signal the presence of buyers. If this generates enough upside momentum then buyers could take a shot at a retest of $2031.70.

This is likely if the Fed’s message is perceived as dovish.