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Gold Prices Drop as Fed Rate Hike Odds Rise

Gold Prices Drop as Fed Rate Hike Odds Rise

2016-08-29 11:56:00
Jeremy Wagner, CEWA-M, Head of Education

Talking Points

-Gold prices test triangle support in the previously cited $1311-1320 zone

-The Fed is trying to invigorate September 21 as a live meeting with a possible rate hike; odds now at 42%

-The higher probability pattern appears to be a triangle which suggests higher prices towards $1375

On August 15, we had written how the $1311-1320 price zone for gold prices would be an area of interest for traders. This is a price zone where if bulls were going to appear, they would need to do so prior to $1311 which corresponds to the July 20 low.

The recent comments by Fed Chairwoman Janet Yellen at the Jackson Hole meeting did strengthen the Dollar which pushed gold prices lower. Recently, the Fed has been trying to get traders to believe that there is a potential for rate hikes coming so the market doesn’t become complacent. The Fed Fund futures are projecting a 42% chance of a rate hike in the September 21 meeting, which is the highest level in 3 months. What makes this number more interesting is that this meeting is just over 3 weeks away.

This creates a pressure cooker environment for gold prices. At 42%, a ‘no hike’ in September becomes a disappointment for those planning for it and may send gold prices higher. If they do hike in September, then you have 58% who were not expecting it and may need to play catch up which could send the Dollar soaring, which the Fed is not particularly interested in.

Gold Prices Drop as Fed Rate Hike Odds Rise

Chart prepared by Jeremy Wagner

From a technical perspective, the $1311-1320 zone is still an area of interest. If this zone holds, look for prices to move higher and retest the highs near $1375 and possibly higher towards $1435.

A break down below $1311 suggests that another pattern is in play and opens the door to $1250 and possibly $1200.

To read our quarterly forecasts for Gold or, download our quarterly forecast here.

See gold trader positioning here.

Why do many traders lose? This could be why.

Suggested Reading: Gold Prices Grind Sideways in a Triangle

---Written by Jeremy Wagner, Head Trading Instructor, DailyFX EDU

Follow me on Twitter at @JWagnerFXTrader .

See Jeremy’s recent articles at his Bio Page.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.