Gold Breaks Below $1,775: Brace for FOMC & Fed Rate Decision
Arslan Butt • 2 min read
- Highlights of Fed Chairman Jerome Powell regarding this week’s monetary policy meeting
- High inflationary pressures have kept the US dollar stronger lately
- Watch out for the US FOMC and Federal Funds Rate for further price action
Gold prices closed at $1,772.90, after setting a high of $1,789.80, and a low of $1,766.45. Gold reversed its course and dropped on Tuesday, after having risen for the previous two days. Rising yields and a stronger dollar weighed the precious metal down, as investors waited for clues about how soon the Federal Reserve would be able to phase out pandemic support measures, according to decisions to be taken at the next monetary policy meeting.
Fed Chairman Jerome Powell in Highlights
The recent comments by Fed Chairman Jerome Powell have already been highlighted at this week’s monetary policy meeting. The rate-setting committee is likely to announce that it will accelerate the pace of reducing the bond-buying program to wrap it up by March rather than June. This will help the Fed lift interest rates from near zero, where they have been held since March 2020, when the coronavirus pandemic triggered a short but deep recession.
Stronger US inflation signals odds of a hawkish policy
High inflationary pressures have kept the US dollar stronger lately, but the latest CPI report suggests that the Fed might not consider raising interest rates sooner, as consumer prices did not surge enough to trigger a rate hike. Inflation is anticipated to peak until March next year, when the Fed is likely to have completed its bond taper, making it hard for officials to communicate a more patient course.
Meanwhile, the inflationary pressures could have been elevated by extended supply chain issues and worsening labor shortages, triggered by the impact of the Omicron variant, which is doing less damage to economic growth than previous variants. Gold remained under pressure on Tuesday, amid the strong US dollar and rising US Treasury yields on the benchmark 10-year note. As a result, the DXY extended its upward momentum and rose, reaching a high of 96.59 for the day. The US Treasury yield recovered some of its previous declines and reached 1.47%, putting downward pressure on non-interest-bearing gold.
A quick economic outlook
At 16:00 GMT, the NFIB Small Business Index came in. It remained flat, in line with the expectations of 98.4. At 18:30 GMT, the PPI for November was released, showing a surge to 0.8%, compared to the projected 0.5%, which supported the US dollar. The Core PPI for November also rose, coming in at 0.7%, against the predicted 0.4%, which supported the US dollar. The macroeconomic data, which was stronger than expected, added strength to the greenback, ultimately dragging the gold prices to the downside on Tuesday.
Daily Technical Levels
Pivot Point: 1,776.38
Gold price forecast – Breakout from the upward trendline at $1,775
On Wednesday, gold is trading at 1,770, disrupting the upward trendline at the 1,775 level. On the 2-hour timeframe, gold is likely to gain immediate support at the 1,766 double bottom level. Further to the lower side, this violation could expose the gold prices to the 1,760 level. The RSI and Stoch RSI signal a solid selling bias; therefore, it is worth looking for a bearish entry.
Alternatively, a break above the 1,775 level could drive an uptrend until the next resistance level of 1,782 or 1,789. Watch out for the US FOMC and Federal Funds Rate for further price action. Good luck!