Gold closes fractionally lower as market participant await Fed decision

There are two major events that market participants are awaiting the outcome on. The first major event occurring this week is this month’s FOMC meeting, which began today, and concludes tomorrow. Secondly, president Joe Biden will also address Congress later on this week, his first address to Congress since he was elected approximately 100 days ago. More on the president’s address the Congress in tomorrow’s opening letter.

In regards to the FOMC meeting, members of the Federal Reserve are discussing and evaluating their current monetary policy. Their decisions will become public Wednesday when the Fed releases a statement, which will be followed by Chairman Jerome Powell’s press conference.

It is highly anticipated that members of the Fed will vote to continue their current interest rate policy and leave Fed funds rate unchanged, which is currently set between zero and ¼%. It is also anticipated that the Fed will continue to add monetary liquidity through quantitative easing; the asset purchase program of the Fed which has been purchasing $120 billion worth of treasuries and mortgage-backed securities monthly throughout the pandemic.

It is highly unlikely that Chairman Jerome Powell will rock the boat in regards to raising interest rates, ending their asset purchases monthly, or focusing too intently on the recent rise in yields of the U.S. 10-year treasury notes. Many analysts believe, including myself, that gold prices could break above the key resistance level at $1800 if the chairman’s comments made during tomorrow’s press conference do not cause yields to rise in the 10-year U.S. treasury note.

As we spoke about yesterday, one possible wildcard in terms of commentary to be made by Chairman Powell is the growing homeless encampment which is very close to his Washington DC office. A Washington Post article penned by Rachel Siege and written on of April 17, begins with the following sentence, “As he drove past the intersection of 21st and E streets in Northwest Washington, a 68-year-old man peered through the window, struck by an encampment of homeless people here that grew from 10 tents to 20 in the past year. Then 30. Now 40.

The person driving was Chairman Jerome Powell, who it is believed has been “up at night, or that he kept thinking about them as he drove two blocks south to his office. Powell doesn’t know their names or backstories, either. But what he saw was clear. A visceral reminder of the uneven economic recovery. Right there in the Fed’s shadow.”

Gold futures basis the most active June 2021 Comex contract is currently fixed at $1776.10, after factoring in today’s $4.00 (-0.22%) decline. Collectively these two events could most certainly have a profound impact on the future price of gold. Both events could certainly underscore continued bullish market sentiment for the precious metals if bond yields do not rise.

Wishing you, as always, good trading and good health,