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Gold Prices May Fall as the Fed Falls Short of Dovish Market Hopes

Gold Prices May Fall as the Fed Falls Short of Dovish Market Hopes

Ilya Spivak, Head Strategist, APAC

GOLD & CRUDE OIL TALKING POINTS:

  • Gold prices stalling but overall technical positioning hints at topping
  • Fed policy outlook unlikely to match ultra-dovish market expectations
  • Crude oil may fall with stocks as US Dollar gains pressure gold lower

Gold prices await the Fed monetary policy announcement with bated breath. The central bank is widely expected to deliver an interest rate cut, with markets pricing in an 80 percent probability of a 25bps reduction and a 20 percent chance of a 50bps one.

A smaller dose of stimulus this time around seems more likely. Core inflation is not too far off from the Fed’s 2 percent goal and the jobless rate still hovers near a 50-year low, suggesting that easing here is – by key officials’ own admission – a preemptive move to counter gathering headwinds.

Such an outcome probably isn’t market-moving by itself, putting the focus on forward guidance. Rate futures markets imply investors see Jerome Powell and company producing between 50-75bps in stimulus on top of ending the QT balance sheet reduction effort, all before year-end.

The US central bank is unlikely to endorse this vision. Indeed, much of Chair Powell’s rhetorical pivot and structural reform agenda since taking office – like having a press conference after every FOMC meeting – have focused on moving away from long-form pre-commitment to a nimbler approach.

That is likely to leave the markets wanting, souring risk appetite and punishing sentiment-linked crude oil prices alongside stocks. It may also drive the US Dollar higher, both on haven-seeking grounds and as follow-on rate cut bets are trimmed. That bodes decidedly ill for anti-fiat gold.

Get the latest gold and crude oil forecasts to see what will drive prices in the third quarter!

GOLD TECHNICAL ANALYSIS

Gold prices continue to cling to rising trend support but a Bearish Engulfing candlestick pattern along with negative RSI divergence hint a top is forming. A daily close below the trend line initially exposes the July 1 low at 1381.91. On the upside, a break of the 38.2% Fibonacci expansion at 1447.90 paves the way to challenge the 50% level at 1468.29.

Gold price chart

Gold chart created using TradingView

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices rose to challenge range resistance at 58.19 but stopped conspicuously short of breaking it. A daily close above it opens the door for a test of the 60.04-84 area.Alternatively, a turn below range floor support at 54.84 targets the 49.41-50.60 zone.

Crude oil price chart

Crude oil chart created using TradingView

COMMODITY TRADING RESOURCES

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

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

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