Price of Gold Fundamental Daily Forecast – ‘Line in the Sand’ for Traders is $1795 Ahead of Fed Announcements
Gold futures are trading lower on Wednesday following a wicked reversal to the downside the previous session. This week’s price action suggests that last week’s rally to a one month high was a “one-and-done” and probably fueled by short-covering and buy stops rather than new buying.
Since bottoming on September 29 at $1721.10 the market has rallied nearly $100 but if you look at the daily chart the three major rallies were $50.40, $56.50 and $55.20. Traders weren’t very successful buying strength or breakout, but buying dips proved to be a profitable strategy.
At 08:46 GMT, December Comex gold is trading $1786.60, down $6.80 or -0.38%.
One reason that buying strength is a risky play is that the gold market has been trending lower since August 2020. This means that professionals have been selling rallies. Another reason is the economy has been slowly recovery since the summer of 2020. Finally, the high expectations of the Fed starting tapering in November and the possibility of the Fed’s first rate hike in July 2022 are other reasons to believe that the sellers are still in control.
However, if you look at the weekly chart, you’ll see that prices are balanced, straddling the 50% level of the entire 2020 range. This tells me we are at the “make or break” point in the market.
December Comex gold bottomed the week-ending March 20 at $1460.30 and topped the week-ending August 7 at $2129.60. The mid-point of this range is $1795.00.
By straddling $1795.00 in October, the price action is telling us that this is the line in the sand. It’s indicating that the Federal Reserve can no longer be “wishy-washy” about tapering and rate hikes at its November 2-3 policy meeting.
If the Federal Reserve comes across as hawkish by announcing an aggressive tapering strategy and a definitive timeline for future rate hikes, then look for prices to break sharply under $1795.00
If the Federal Reserve is dovish by announcing a tentative tapering strategy and an inclusive rate hike strategy, then prices are likely to trade on the strong side of $1795.00.
My guess is the Fed will come in with an aggressive tapering strategy then take a “wait and see” approach to the first rate hike. It will first want to see how the economy and especially the labor market responds to the cut in stimulus. Then if inflation starts to level off, they’ll consider a first rate hike.
By my estimates, the hawkish tapering and dovish rate hike approach, will keep gold prices in a range. The top of the range will likely be $1795.00 and the bottom of the range $1716.00.