Gold’s rally runs out of juice as focus turns to the Fed
Fawad Razaqzada June 15, 2016 7:10 AM
Safe have assets like government bonds and gold are taking a backseat this morning as stocks, crude oil and even the pound bounce back a touch. Clearly, there is an element of profit-taking after this week’s selling of risk-sensitive assets. In addition, traders are wary of a potential surprise from the Federal Reserve at the conclusion of the FOMC’s meeting this evening. So, they are easing off the gas on the markets that have been going in one direction in recent days. This obviously does not necessarily mean that the trend is over; it could just be pause for breath – and not just for gold.
Although no change is expected to be seen as far interest rates are concerned, due among other things to the fact that the Brexit vote is now just over a week away, the dollar may nevertheless move sharply depending on the language the Fed uses in the FOMC policy statement and Janet Yellen during here press conference with regards to future policy.
If the Fed prepares the markets for a July rate increase, then this would be the most hawkish outcome as at the moment the probability for a rate rise next month is just 20%, according to the CME Group’s FedWatch tool. Expectations about an imminent rate rise will most likely weigh heavily on gold and silver, assets which pay no interest and cost money to store. Conversely, if the Fed is more dovish than expected then gold and silver, and possibly equities, could rally sharply in the expense of the US dollar.
From a technical point of view, gold’s relentless rally from around $1200 seems to have stalled at just shy of $1290. As the 4-hour chart shows, below, the precious metal has failed to break conclusively above the prior swing high of $1288, which it needs to if we are to see a run towards the early May high of $1304, and beyond.
But the momentum indicator RSI has been trending lower at the overbought levels of around 70 in recent days, suggesting that rally has run out of juice – which the Fed could replenish tonight if it delivers a more dovish-than-expected policy statement and economic projections.
However, if the Fed leans more towards the hawkish side then the dollar could rally, causing gold to weaken. The key short-term support to watch is around $1278, below which there are not many other immediate reference points until $1260.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.