Gold price attracts some dip-buying and reverses a part of the overnight corrective slide. Bets for a 50 bps Fed rate cut keep a lid on the attempted USD recovery and lends support. Bulls seem reluctant to place aggressive bets ahead of the key central bank event risks.
Gold buyers regain control, as the 14-day Relative Strength Index (RSI) remains comfortably above the 50 level, having eased off from near the overbought territory. The optimism prevails so long as they defend the one-and-a-half-month-old symmetrical triangle target now support at $2,560. That said, the immediate resistance is seen at the record high of $2,590, above which the $2,600 level will be tested.
If the Fed disappoints the doves, Gold price could witness a fresh sell-off, which could challenge the August 20 high of $2,532.
Fundamental Overview
On the Fed day, markets continue to price in a 65% probability of 50 basis points (bps) interest rate, reviving the selling interest around the US Dollar (USD), as the US Treasury bond yields also turn defensive amidst the market caution.
Thus. Gold price attempts to retake the all-time-high just shy of the $2,600 mark, with eyes on the Fed verdict, Chairman Jerome Powell’s press conference and the Dot Plot chart, all of which will help gauge the US central bank’s future policy action.
If the Fed delivers a 25 bps rate cut later this Wednesday, it could fuel a knee-jerk US Dollar upswing. However, the immediate reaction to the Fed announcements could be overshadowed by the implications of the Fed’s projections and Powell’s words. Gold price, therefore, remains subject to intense volatility during the Fed event.
An outrightly dovish outcome and rate projections by the world’s most powerful central bank could prompt Gold price to refresh record highs at the expense of the US Dollar. "A dovish Fed on a substantial easing path should generally lead to a weaker dollar.
In contrast, should the Fed acknowledge potential upside risks to inflation and maintain a cautious tone, it could bring the hawks back in the game, weighing negatively on the non-interest-bearing Gold price.
Gold price corrected briefly from record highs on Tuesday, courtesy of a profit-taking spree in the US Dollar ahead of the Fed event while strong US Retail Sales data also contributed to the resurgent USD demand. US Retail Sales rebounded by 0.1% MoM in August, data showed on Tuesday, against expectations for a 0.2% contraction. Data somewhat eased fears over a potential US ‘hard-landing’.
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