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Gold Prices Channel-Lower Ahead of FOMC

Gold Prices Channel-Lower Ahead of FOMC

James Stanley, Senior Strategist

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  • Gold Technical Strategy: Intermediate-term mixed, short-term bearish.
  • Gold prices have continued to move-lower ahead of the Fed’s May rate decision; but a key area of potential support remains around $1,250.00.
  • If you’re looking for trading ideas, check out our Trading Guides. If you’re looking for ideas more short-term in nature, please check out our IG Client sentiment.

In our last article, we looked at the continuation of bearish momentum in Gold prices as the move-lower extended below yet another area of support at $1,261. The most apparent catalyst for Gold prices since the out-sized bearish move around the U.S. Presidential election has been the Federal Reserve. When the bank hiked rates in December, a low was set in Gold prices at a level of $1,122.81, after which prices rallied for much of the next two-and-a-half months.

As we entered March, the Federal Reserve had already begun talking up another rate hike, and Gold prices spent the first half of the month moving-lower until we eventually got that rate hike. But at that point, another higher-low was set, and Gold prices proceeded to rally for the next six weeks; driving-up to a new five-month-high at $1,296.46.

So, over the past five months, the post-rate hike environment created by the Fed has been a bullish catalyst to Gold prices; and the bearish driver has been traders tightening up ahead of rate decisions - much as we saw in the first half of March. Later today, we get the Federal Reserve’s rate decision for the month of May, and for the past two-and-a-half weeks, Gold prices have been channeling-lower, very much fitting the profile of what’s been seen in price action around Gold prices since that December rate hike.

Gold Prices Channel-Lower Ahead of FOMC

Chart prepared by James Stanley

With the Federal Reserve’s rate decision for the month of May on tap for later this afternoon, Gold prices could receive a considerable boost of volatility. For traders looking to implement bearish strategies, they’d likely want to see this zone at $1,250 yield; at which point this area could be re-assigned in the effort of seeking out ‘lower-high’ resistance.

Alternatively, for those looking to implement bullish strategies on Gold – watch the area around $1,250, and if support does show-up around this afternoon’s Federal Reserve meeting, the stage could be set for playing top-side reversals. For those that want to take a more conservative route towards trading a bullish move in Gold prices, we discussed how traders can use price action to trade into new trends in our education article from yesterday, and this methodology could certainly be adapted to the current setup in Gold.

Gold Prices Channel-Lower Ahead of FOMC

Chart prepared by James Stanley

--- Written by James Stanley, Strategist for DailyFX.com

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