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Gold Prices at Risk if the FOMC, Powell Underwhelm Dovish Markets

Gold Prices at Risk if the FOMC, Powell Underwhelm Dovish Markets

2019-09-14 16:00:00
Ilya Spivak, Head Strategist, APAC
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GOLD FORECAST: BEARISH

  • Gold prices wholly focused on FOMC monetary policy announcement
  • Risk of underwhelming markets’ dovish bets looks asymmetrically high
  • US-China trade war, Brexit headlines may generate seesaw volatility

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Gold prices are likely to be wholly consumed with the Fed monetary policy announcement in the week ahead. Traders are unlikely to show lasting directional conviction one way or another before Wednesday’s fateful outcome. Whatever happens is likely to shape the trend bias at least through the remainder of the week, and probably for a substantial time thereafter.

GOLD MAY FALL AS FOMC RATE DECISION UNDERWHELMS DOVISH MARKETS

The rate-setting FOMC committee is widely expected to issue another interest rate cut. Indeed, the probability of a 25bps reduction is priced into futures markets at a commanding 79.6 percent. The easing outlook for the full calendar year has moderated over recent weeks but markets continue to expect at least one more 25bps reduction after this month’s move, though 50bps more appears to be favored.

That sets up the event such that Chair Powell and company will have a relatively hard time surprising on the dovish side of the policy spectrum. On the other hand, the likelihood of an outcome that underwhelms investors pining for accommodation seems to be asymmetrically high. That bodes ill for the non-interest-bearing yellow metal. If scope for rate cuts is diminished, it is likely to suffer.

US-CHINA TRADE WAR, BREXIT MAY BRING UNFORSEEN VOLATILITY SPIKES

Heightened political uncertainty warns that sporadic volatility spikes remain an acute risk. Unexpected yet pivotal soundbites from key officials shaping the path of US-China trade war negotiations or trajectory for Brexit may well generate seesaw swings from gold prices. However, any such moves will probably struggle to find follow-through independent of the lead established by the Federal Reserve.

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

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

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