Fed Action Forthcoming

Weekly Market Preview: Bulls On The Ropes (Sept 19, 2022)

The gold market is a bit weaker on Monday despite some keener risk aversion in the marketplace. A stronger dollar along with rising treasury yields seem to be the primary bearish factors for gold today. As has been the case for some time now, investors appear to be choosing the dollar and U.S. Treasuries for their safe haven needs and leaving gold alone.

Under Long-Term Support

Early action Monday sees gold hovering just above the nearly 2.5-year low reached last week. The yellow metal is currently under long-term support at $1,675 in what may be a sign of additional weakness to come. The longer the metal spends underneath this key level , the more likely a move lower may become.

The bulls have their work cut out for them. There is little, if anything, in the way of the bears taking prices sharply lower from current levels. Some have suggested the slide may continue until the metal reaches the $1,550 area. While this remains to be seen, the bears do appear to have the clear advantage right now.

Fed Action Forthcoming

This week, markets will see the latest Fed action as the FOMC meeting concludes. Expectations are widely favoring another aggressive rate hike of 75 points. Some have even considered a full, 100 point rate hike this week as a possibility. The Fed action this week is seemingly already priced into the market. What investors likely want to know is what the Fed plans on doing down the road.

Should the Fed remain hawkish in its actions and rhetoric, gold could see ongoing pressure. The yellow metal may not, in fact, begin to make a sustainable turnaround until the Fed signals a change in policy. Such a signal is unlikely to come anytime real soon, however, and could be well into the next year before being seen.

If the Fed does not signal a change in policy at some point, stocks and risk assets are likely to come under increasing pressure. That pressure will eventually break the market in what could be a quick and massive decline. At that point, investors may have nowhere to turn to except gold if they do not want to be stuck holding dollars.

If the Fed does decide to take a break from its rate hikes or signals it may begin loosening rates again, the gold market could see a substantial rally. The yellow metal has been driven lower not only by the notion of higher interest rates, but also by the effects of that idea. Higher rates may boost not only the dollar but also U.S. Treasury yields as well, both of which are bearish factors for gold investors.

Source: Live Trade Room

A dovish move by the Fed could not only deflate rate expectations, but could also put a major dent into the dollar and yields. This could, in turn, give gold a serious boost and put it onto more neutral footing from which it may be able to stage a significant rally.

Building A Base?

As the yellow metal spends time around long-term support at $1,675, it also has the potential to build a significant base. If the bears are unable to take prices lower from here, bargain-hunting bulls may scoop the metal up and eventually cause an upside breakout. Gold’s three-year uptrend would also remain intact then.

The gold market has been primarily rangebound for months now and may continue to move sideways into next year. The Fed seemingly holds the keys to gold’s fortunes, and the metal may not make any sustainable moves until more is known about the central bank’s plans.

The bulls need to get and maintain the gold price above long-term support at $1,675. They then need to take the market back above $1,700 and a close above $1,800 could potentially attract fresh buyers. If the bears have their way, the market could sink to the $1,550 level before finding some solid footing.