Market participants await forward guidance from Federal Reserve

According to the Federal Reserve’s website, “Forward guidance is a tool that central banks use to provide communication to the public about the likely future course of monetary policy. When central banks provide forward guidance, individuals and businesses will use this information in making decisions about spending and investments. Thus, forward guidance about future policy can influence financial and economic conditions today.”

The FOMC began issuing forward guidance in its post-meeting statements in the early 2000s. Since then, it has been a central component for corporations, as well as the investment public at large to determine any changes in the Fed’s monetary policy from the FOMC meeting to the FOMC meeting. While it is highly anticipated that the Federal Reserve will leave their Fed funds rate intact between 0 and ¼% and continue their monetary policy of purchasing mortgage-backed securities and U.S. debt allocating $120 billion per month, the exact timeline in which they will begin to implement tapering of quantitative easing and low-interest rates remains an uncertainty.

As of 4:15 PM EST gold futures basis, the most active August 2021 Comex contract is currently trading lower by $4.60 and fixed at $1797.20. It seems as though gold investors and traders are hoping for the best but preparing for the worst which has put gold pricing on the defense recently. This marks the first time since July 6, 2021, that gold futures have effectively closed below the key psychological level of $1800 an ounce.

In an interview with Neils Christensen, editor of Kitco News, Rob Haworth, senior investment strategist at U.S Bank Wealth Management, said that in the “near term, he expects gold prices to remain on the defensive as investors on the ongoing economic recovery in the U.S.”. During the interview, Rob Haworth also said, “near term, he expects gold prices to remain on the defensive as investors on the ongoing economic recovery in the U.S.”

However, the senior investment strategist at U.S Bank Wealth Management cautioned, “that investors might have to wait until September to see how the next recovery phase unfolds. A new wave of the COVID-19 virus is sweeping through the U.S.” Depending on how the new Delta variant is controllable and whether or not it leads to schools opening up or not is the main contingency as to whether or not the current recovery transitions into a longer expansion phase.

Beginning tomorrow the Federal Reserve will commence its two-day Federal Open Market Committee meeting in which it is highly expected that Fed members will deliberate the most likely and viable timeline begin to unwind the unprecedented purchases of $120 billion monthly of mostly United States debt purchases. They will lay out the specifics of their current monetary policy offering the public forward guidance. The forward guidance will be released in the statement immediately following the conclusion of this month’s FOMC meeting. This will be followed as always by a press conference held by Federal Reserve Chairman Jerome Powell.

On a technical basis, our studies indicate that there is still a strong level of support at gold’s 100 days moving average which is currently fixed at $1745.50, as well as the 50% retracement of the last major rally which began at the end of March 2021 when gold traded from a low of $1674 to the highs achieved on June 1, 2021, when gold traded as high as $1919 per ounce. Currently, we see major resistance at the 38.2% Fibonacci retracement using the same data set as mentioned above which is currently fixed at $1825.40.

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