Price of Gold Fundamental Daily Forecast – Patient Traders Waiting for Fed Tapering Clarification

Gold futures managed to eke out a tiny gain on Friday after posting its fifth straight rangebound session. The price action suggests investor indecision and impending volatility. It’s a true assessment of current market conditions, however, given the uncertainty over the Federal Reserve’s plans to taper stimulus.

The key area that traders have been reacting to is $1795.00 to $1800.00. This price range first became an area of interest between June 17 and July 2 when traders treated it as resistance. Between July 6 and August 5, this area was support. Now it is acting like resistance again.

The price action around that range has been tied to Fed activity. Between June 17 and July 2 when it was acting like resistance, investors were reacting to the Fed’s decision to move forward its first interest rate hike.

When $1795.00 to $1800.00 was providing support between July 2 and August 5, traders were reacting to uncertainty over the strength of the U.S. labor market, a key component of the Fed’s tapering decision process.

On August 6, gold plunged through $1795.00, finally hitting a low of $1677.90 on August 9 before rallying back to, you guessed it, $1795.00 to $1800.00. Last week’s high at $1797.60 stopped the rally. That rally was fueled by weaker than expected consumer inflation data, another key component in the Fed’s tapering decision process.

It looks as if the $1795.00 to $1800.00 range is controlling the direction of the gold market, and is likely to continue to do so over the near-term until the Fed comes clean about its tapering plans.

Short-Term Outlook

With the central bankers’ symposium at Jackson Hole, Wyoming scheduled for August 26 to August 28, some traders are expecting the Federal Reserve to make a definitive announcement about tapering after the minutes from its July meeting, released last Wednesday, showed most policymakers were leaning toward reducing stimulus before the end of the year.

Given the COVID surge and the situation in Afghanistan, I don’t think it would be prudent for the Fed to make such an announcement at this time. With the economy in mind, it would probably be best for policymakers to wait until the regularly scheduled monetary policy meeting on September 21-22 before making an announcement of this magnitude. This way Fed officials would’ve had the chance to see another non-farm payrolls report and consumer inflation data.

Continue to monitor the price action and order flow at $1795.00 to $1800. Trader reaction to this area is likely to set the near-term down. Right now, it’s resistance.