Gold Drops on Friday
Gold prices are trading lower ahead of the weekend as a firmer US Dollar weigh on the safe-haven metal. Traders are looking ahead to next week’s FOMC meeting and the risks that the Fed strikes a less-dovish tone in its outlook given the recent rise in inflation and labour market data.
Fed Expectations
While the Fed is still expected to cut rates by a further .25%, the market is now less expectant of a follow rate cut early next year with the Fed likely to reiterate its message that it is in no rush to ease and can afford to wait and assess incoming data. Indeed, current market pricing for a further cut by March is only around the 60% mark, showing that expectations are split.
Geopolitical Uncertainty
Gold prices had been well supported up to the resurgent rally in USD this week as a result of safe-haven inflows. Global geopolitical uncertainty has been a big driver for gold demand this year and with Russia-Ukraine violence escalating, and the coup in Syria, this dynamic looks likely to remain in place into next year meaning that gold price should continue to find demand into dips.
Near-Term View
The key for gold prices over year-end will be how the Fed acts next week. If the Fed cuts rates but signals that economic conditions are unlikely to warrant a consistent pace of easing (no follow up cut near-term), USD is likely to rally, keeping gold pressured lower. If, however, the Fed cuts but sounds more neutral on rates or keeps the door open to further easing, gold should rally on near-term USD weakness.
Technical Views
Gold
The rally in gold has stalled for now into the 2,718 level highs. Price is now tuning lower with focus on a test of support at the 2,604 level. Bulls need to defend this level to prevent a deeper drop towards 2,530 and keep focus on a return to YTD highs.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.