Gold price expectations before the Fed meeting .. a red line crossed by it means a collapse

  • Fed speakers point to the inevitability of a third straight hike of 75 basis points
  • Fed Toughness Will Reach New Heights After Latest Jobs Report, Consumer Data
  • Bulls need to avoid falling below $1,708 at all costs

Exactly three weeks before the next rate hike by the Federal Reserve. Gold longs, which are already closing their fifth month of losses by the end of August trading today, want to avoid the yellow metal breaking through the next red line at $1,708.

Since the post-invasion Ukraine spikes pushed gold to a nearly record peak above $2,070, gold has lost over $345, or 18% of its value.

However, what is interesting is that the collapse has been slow.

gold price chart

Charts by SKCharting.com, based on data provided by Investing.com

It was an unusually bleak period for gold. But it hasn’t reached a full meltdown — not yet, thanks to the conflicting US data released every time the yellow metal approaches its critical breaking point over the past three months.

This is what has seen bullion swing between $1,800 and $1,700 since May, after the sharp crash from $2,000 and $1,900.

Despite this, the downward pressure on gold is building – especially after the recent US jobs and consumer data which indicated that the US median finances are still too strong to sustain the inflation bubble.

While Americans fear a deeper recession due to interest rate hikes, the consumer confidence index continued to rise in August after a three-month decline, according to data from the Conference Board that monitors economic data tracked and published by public and private companies.

Meanwhile, the number of job vacancies in the United States increased by half a million to 11.2 million in July compared to June, with nearly two job openings for every unemployed person, according to the Labor Department.

Such upbeat data, of course, does not guarantee any compromise on the hawkish path the Fed has taken since June.

Since Chairman Jerome Powell’s direction-setting speech at the central bank’s Jackson Hole seminar in Wyoming on August 26, nearly every Federal Reserve speaker with or without voting rights at the FOMC has indicated their expectation of a rate hike. 75 basis points in a row on September 21.

Investing.com’s Federal Reserve rate watcher had set a 67% chance of a 75 basis point rate hike when the Federal Open Market Committee meets in three weeks.

And there’s more to come, says Ed Moya, an analyst at online brokerage Oanda, who has set his pricing at “a half point in November and a 25 basis point increase in December”.

Moya adds:

“Over the next few months, if labor market growth does not subside and the consumer remains resilient, Wall Street may start pricing in rate hikes for February and March.”

The real puzzle for investors is the strange state of the American economy. Interest rates are raised as the US stands at a crossroads between high inflation and the start of a recession.

Bonds are becoming a safe haven instead of gold, throwing the yellow metal in the direction of the bears.

Some point to the possibility of stagflation. But with employment as strong as with booming demand, this seems unlikely even if inflation remains consistently high. In short, there is no precedent for this situation that makes comparison with the current situation easy, especially given that each economic cycle is dynamically different from the other.

Inflation in the US has remained at a four-decade high since late last year, although the closely watched CPI slowed to an annual rate of 8.5% in July down from a peak of 9.1% in June.

The Fed’s goal is for inflation to reach only 2% per year as is necessary to achieve it.

James Stanley, who blogs about gold on the DailyForex trading platform, noted that gold has been range-bound since it topped $2,100 two years ago.

He noted that band support had already been subjected to three important tests, the last of which was in mid-July, and added:

“Given the fundamental background, with President Powell exerting stronger pressure to tighten policy through messages to Jackson Hole, it appears that there is a fundamental possibility for gold to continue falling. Higher interest means higher opportunity cost of capital and this could be a drag on gold”.

“The most important question is whether this is the cycle that could lead to a breakout of the support area that has been held for the past two years, within the $1,700 psychological level and around that $1,673-1,680 area on the chart.”

gold price chart

Returning to the pivotal question: What is the important level for gold bulls to avoid at all costs, so that the price does not fall to the $1600 region?

According to Sunil Kumar Dixit of SKCharting, who tracks the spot price of gold, that level would be at $1,708.

“If the price breaks below $1,708, the bears will look to $1,680.”

“Gold bulls need to beat the levels $1,730 – 1,740, and continue to reach initially $1,755 to revive hopes of reaching the long-awaited level of $1,777 to $1,783.”

He added, “Any slight recovery towards the $1,730-1.735 region is likely to bounce back down and the next dip will try to test the $1,708 region again.”

Disclaimer: Barani Krishnan bases his analysis on some conflicting opinions only to achieve diversity and present the different theses in the markets. In support of neutrality, Barani offers several perspectives and variables as he analyzes the markets. In the interest of transparency, we would like to inform you that Barani does not trade in any of the commodities or securities that he analyzes and writes about.

The article is in Arabic

Tags: Gold price expectations Fed meeting red line crossed means collapse

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