Gold Outlook: Fed decision week

Since our last report Gold’s price, appears to be moving in a downwards trajectory. In today’s report we are to discuss mainly fundamental issues and we intend to end the report with a technical analysis of Gold’s daily chart.          

Fed decision to shake the markets

The Fed’s interest rate decision is set to take place later on this week and will most certainly garner significant market attention at the time of its release. Specifically, the Fed decision is set to take place this Wednesday, with the majority of market participants currently anticipating the bank to hike rates by 25 basis points. In particular, FFF currently implies an 86.8% probability for such a scenario to materialize; thus attention could turn to the bank’s accompanying statement and Fed Chair Warsh’s press conference following the banks decision. During the speech and within the banks accompanying statement, market participants may be looking for clues which may provide insight into the bank’s next steps moving forward. In particular, our attention will be turned to the comments about the persistently high energy prices stemming from the tensions in the Middle East and as to how the bank may be factoring in these conditions when deciding their monetary policy path. In our view, we wouldn’t be surprised to see a more hawkish sentiment emerging from policymakers post-Fed decision, which could provide support for the dollar whilst weighing on gold’s price given its assumed inverse relationship with the dollar.

US-Iran tensions escalate as other actors increase their involvement

Tensions between the US and Iran continue to be escalating, with Iranian state media claiming that an Iranian commercial vessel was struck on Saturday in the Strait of Hormuz. Per CNN the US has not commented on the reported attack. Furthermore, Iranian backed rebels have attacked Saudi bases and energy installations in the region, thus amping the economic pressure on a global scale. Overall, tensions have risen and should they continue to do so on a much larger scale, we may see gold receiving inflows given its safe haven asset status. Although it should be noted that gold’s aforementioned safe haven status appears to be dormant at this point in time.

US inflation accelerates on a month-on-month basis

The US Inflation print for August was released last Friday. On a headline and core level on a year-on-year basis, the inflation print came in as expected by economists, with the Core CPI rate coming in at 2.4% and the Headline CPI rate come in at 3.4%. However on a month-on-month basis, both figures showcased an acceleration of inflationary pressures, which in turn may have aided the dollar, whilst weighing on gold’s price given their inverse relationship with one another. Moreover, the UoM preliminary inflation expectations for September also came in higher than expected, showcasing worries about a possible acceleration of inflationary pressures which could have further aided the greenback during Friday’s trading session.

Технический анализ

XAU/USD Daily Chart

Gold’s price appears to be moving in downwards fashion. We opt for a bearish outlook for the commodity and supporting our case is the break below our support now turned to resistance at the 4435 (R1) level. Moreover, further aiding our hypothesis is the RSI indicator below our chart which currently registers a figure close to 40, implying a bearish market sentiment. For our bearish outlook to continue we would require a clear break below our 4180 (S1) support level with the next possible target for the bears being our 4020 (S2) support line. On the other hand, for a bullish outlook we would require a clear break above our 4435 (R1) resistance line with the next possible target for the bulls being our 4520 (R2) resistance level. Lastly, for a sideways bias we would require gold’s price to remain confined between our 4180 (S1) support level and our 4435 (R1) resistance line.

Disclaimer:

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