Gold traders prepare for Fed decision next week

Research Takeaway

Gold is moving in a predominantly sideways fashion, with the Fed’s interest rate decision set to take place next week. The current expectations are for the bank to remain on hold, with FFF implying an 85.1% probability for such a scenario to materialize. Thus, attention may turn to Fed Chair Warsh’s press conference following the decision and the bank’s accompanying statement, which may provide insight into the bank’s inner deliberations. In our view, we wouldn’t be surprised to see a more hawkish stance from the bank in its communications next week, as inflation still remains high, which in turn could weigh on gold’s price.

Research Desk View: BEARISH

Gold in One Minute

The Gold Thesis

The markets may be preparing for the Fed’s interest rate decision next week. As things stand, FFF currently implies  an 81% probability for the bank to remain on hold in their next meeting, which in turn could lead to gold remaining in a sideways fashion up until the bank’s decision. However, when looking at the recent inflation metrics from the US, we can see that inflation has accelerated in the most recent inflation print, which could be of concern for the Fed moving forward. In turn, we wouldn’t be surprised to see the bank’s commentary being perceived as hawkish in nature, which could provide support for the greenback whilst weighing on gold’s price given the inverse relationship between the two assets. Yet, we should note that despite the relative low coverage of the Middle East, we would not be surprised to see tensions heating up between the US and Iran, which could provide safe haven inflows into the precious metal.

Gold Drivers

Key Events

Technical Context

XAU/USD appears to be moving in a sideways fashion. We opt for a sideways bias for the bullion. For our sideways to be maintained, we would require gold’s price to remain confined between our 4080 (S1) support level and our 4200 (R1) resistance line. On the other hand, for a bearish outlook, we would require a break below our 4080 (S1) support level, with the next possible target for the bears being our 3945 (S2) support line. Lastly, for a bullish outlook, we would require a clear break above our 4200 (R1) resistance line, with the next possible target for the bulls being our 4350 (R2) resistance level. Lastly, for a sideways bias, we would require gold’s price to remain confined between our 4080 (S1) support level and our 4200 (R1) resistance line.

Short-Term Gold Levels

What Changes the View

The Gold Lens

The Fed’s decision may shake the markets, considering the state of the US economy and the possible impact of the Fed’s communication for the bank’s stance until the end of the year.

Key Variables to Remember

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