The more hawkish FOMC dot plot led to a huge selloff in Gold as the rise in real yields increases the opportunity cost of buying into Gold even more. As long as the economic data remains this resilient, we will likely see more downside for Gold as the Fed will keep its hawkish stance. For another major rally, Gold will need bad data as the Fed looks willing to cut rates if real yields rise too much as some FOMC members have indicated in their remarks. The data needs to point to a recession though as without one the Fed won’t be comfortable in cutting interest rates prematurely.
Gold Technical Analysis – Daily Timeframe
On the daily chart, we can see that we got a huge selloff following the more hawkish than expected FOMC dot plot. It looks like the Fed’s projection acted like a wakeup call for Gold bulls and the price started to catch with real yields which have been rising strongly in the past few months. Right now, the price is a bit overstretched as depicted by the distance from the blue 8 moving average. In such instances, we can generally see a pullback into the moving average or some consolidation before the next move.
Gold Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a good resistance zone around the downward trendline where we can also find the confluence of the previous swing high level and the 38.2% Fibonacci retracement level. That’s where the sellers will have a better risk to reward setup if the price pulls back into that zone. The buyers will need the price breaking above the trendline to turn the trend around and start targeting the highs.
Gold Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a divergence with the MACD which is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, we should see a pullback into the 1875 resistance zone where the sellers will step in with a defined risk above the trendline to target the 1805 level. The buyers, on the other hand, are likely to pile in around here with a defined risk below the low to target the 1875 resistance first and a break above the trendline next.
Upcoming Events
This week we have many key economic releases that will culminate in the NFP report on Friday. Today, we will see the latest ISM Manufacturing PMI. Tomorrow, we will have the Job Openings data which led to a strong rally the last time as the big miss was interpreted as a good thing due to less labour market tightness and less hawkish Fed. On Wednesday, it will be the time for the ADP report and the ISM Services PMI. On Thursday, we will see the Jobless Claims data, which continues to show a solid labour market. Finally on Friday, it will be the time for the NFP report which is the only one the Fed will see before its next rate decision. Gold is likely to react positively to negative data and vice versa in case of positive data.
