Gold Trades Under Pressure as an Interest Rate Hike Remains Highly Probable

For the last six consecutive days gold prices have moved lower. This is in anticipation of a potential interest rate hike later this month when the Federal Reserve meets on March 14-15. Recent statements made by Federal Reserve members, including chairwoman Janet Yellen, have continued to make a strong case for an interest rate hike being the appropriate action and an outcome of this month’s meeting.

The underlying sentiment from the Fed seems to be that the economic data that Fed members use to aid in their decision has been supportive of an interest rate hike as an appropriate move at this time. Although Fed members, traders, and investors are awaiting the results of Friday’s non-farm payroll jobs report, the current estimate is that there were 190,000 new jobs added in February.

As reported by Reuters today, “The monthly U.S. jobs report, due on Friday, is expected to show an increase of 190,000 jobs, probably enough to push the Fed to raise its base rate again for the second time in four months.”

“The market is taking in stride expectations the Fed will raise rates, unlike past years,” said Rahul Shah, chief executive of Ideal Asset Management in New York.

Technical Levels of Potential Support

Based on market sentiment, which currently sees an extremely high probability of an interest rate hike this month, gold prices continued to drop dramatically, trading off approximately $10 as of 10:30 EST at 1215.50.

According to our current studies, the next major level of potential support comes in at approximately 1210. This is based upon a Fibonacci retracement harmonics, in which two different time and price cycles contain one primary price point. The first Fibonacci retracement that we use starts at 1124 (the start of the major rally which occurred at the beginning of this year) and concludes at 1264. The second Fibonacci retracement begins at the low found on January 27, at 1180, and also concludes at 1264.

Both retracements contain critical Fibonacci numbers at 1211- 1212, with 1212 being a 38% retracement of the larger Fibonacci study, and 1211 being a 61.8% retracement of the shorter of the two Fibonacci studies. The fact that these different time cycles contain important Fibonacci numbers at the same price tends to increase the strength of the technical study’s result.

Wishing you as always, good trading,