Waiting on The Fed

As we start this week -- traders, investors, and market technicians are waiting for the monthly FOMC meeting to commence. Beginning tomorrow and concluding on Wednesday, the Federal Reserve will meet. Market participants will be listening for any indication as to the direction of the Fed’s monetary policy.

Currently, it is widely acknowledged that the Federal Reserve has moved into a more hawkish demeanor by raising the number of interest rate hikes this year from 3 to 4. It has been higher interest rates that have been the catalyst for dollar strength, and it is dollar strength that has been the catalyst for weaker gold pricing.

In an interview with MarketWatch, Chintan Karnani, chief market analyst at Insignia Consultants in New Delhi said, “Gold’s price will depend on the U.S. dollar. Pre-FOMC moves are there. Momentum is very bearish for gold. Buyers are waiting for more correction.”

As of 3:50 PM Eastern standard time gold futures are trading off by $2.50 and are currently fixed at $1,220.50, based on the most active August Comex contract. At the same time, spot gold is currently down by two dollars and fixed at $1,221.20.

On closer inspection, today’s decline in gold pricing is largely tempered by a weaker U.S. dollar. The dollar index is currently trading off by 35 points and fixed at 9,413. According to the Kitco Gold Index (KGX), the decline in physical gold is due to moderate selling pressure and dollar weakness. Selling pressure accounted for a decline of $6.30 per ounce. However, after factoring $4.30 of gains directly attributable to dollar weakness, physical gold decline was greatly tempered resulting in a two-dollar loss on the day.

Considering recent weakness in the U.S. equities markets with major selling pressure set squarely on the tech stocks, and the current risk-on market sentiment which has diminished substantially, continued bearish sentiment has weighed heavily on gold pricing.

According to Jim Wyckoff of Kitco News, “The gold and silver markets remain in the grips of the chart-based bears, and with no major fundamental news to drive the metals at present, prices will likely continue to drift sideways to lower. The safe-haven metals bulls need a jolt of fresh, major news on the geopolitical front to create some new uncertainties.”

It is clear that the lack of any fresh fundamental news supportive of gold continues to be the driving force moving gold prices lower. It is also clear that on a technical basis market technicians and chartists continue to forecast sideways to lower pricing. At the same time, one must acknowledge that forthcoming statements made at the conclusion of this week’s FOMC meeting will greatly shape the future market sentiment and pave the way for the next move in gold pricing whether that is higher or lower.

Wishing you as always, good trading,