Gold Stuck In Tight Trading Range

The greenback rallied on Friday as more Federal Reserve members spoke in favor of a rate increase in the near term. Gold ended the week at 1331.65 and is expected to bounce back towards the 1350 level but no higher. Gold should see some volatility as the last Fed speaker on the calendar speaks on Monday ahead of the blackout period. Silver took a hit also giving up 565 points on Friday to trade at 19.113. Monday morning gold eased a bit in the Asian session but will most likely recover as the European markets open. Gold is currently at 1331.00.

Federal Reserve Bank of Boston president Eric Rosengren, who shifted his stance in recent months in favor of monetary tightening, warned Friday that waiting too long to raise interest rates risks overheating the economy.  A 2016 voter on the Federal Open Market Committee, Mr Rosengren argued for years to combat unemployment with low rates. In a speech Friday, Mr Rosengren said that a “failure to continue on the path of gradual removal of accommodation could shorten, rather than lengthen, the duration of this recovery”.

Federal Reserve Bank of Atlanta President Dennis Lockhart speaks on monetary policy and the economic outlook before the National Association for Business Economics 58th annual meeting the last speaker ahead of the FOMC meeting beginning on September 20^th.

Rate hike expectations began to increase again and are back up to similar levels as last week. This is important because lately gold prices tend to move inversely with rate hike expectations. If there is an expectation for increased rates, then traders will seek out other assets which produce a yield. If rates are expected to remain low, then gold appears more attractive since it doesn’t deliver a yield.

Recent commentary from Fed officials continues to suggest that the central bank remains on course for a hike this year and heading into next week traders will be looking for more hawkish remarks from Atlanta Fed President Dennis Lockhart, Minneapolis Fed President Neel Kashkari as well as Fed Governor Lael Brainard. As it stands, Fed Funds Futures are highlighting a pickup in interest-rate expectations, with market participants now pricing a 30% probability for a September rate-hike. However, the broader outlook remains unchanged with market consensus continuing to price the first material expectations (above 50%) for a rate-hike in December. For bullion, the pullback from the monthly may be short-lived should the fresh wave of central bank rhetoric fail to move the needle for Fed expectations.

Gold continues to trade within the confines of a modified descending median-line formation with off the yearly high with price turning just ahead of the upper parallel before settling just above the July low-day close at 1330. Subsequent support rests at the monthly low-day close at 1323 & the monthly open at 1308 with the broader focus weighted to the topside for gold while above a key support confluence at 1302- a region defined by the 100% extension of the decline off the highs, the 100 day moving average and basic trendline support extending off the December low.

Updated price moves indicated a 30 percent chance of tighter policy this month, according to data compiled by Bloomberg. The probability of a move by year-end was 60 percent. The calculations assume the effective fed funds rate will average 0.625 percent after the central bank’s next boost.