On evaluating the movements of on different time-pattern charts since the last meeting of the US Federal Reserve in August, I find that the currently prevailing uncertainty is over the next move by the Federal Reserve, while the majority expect a rate hike of 25 basis points, considering the elevated inflation.
But persisting doubts about its action tonight could cause a lot of sudden jolts if it goes against all odds, as a dip in oil prices right now offered some relief to investors ahead of what could be one of the most consequential Federal Reserve interest rate decisions in years.
Four possibilities are there:
First, if it remains at par with a hike of 25 basis points, gold futures could shed today’s gains, as the markets have already factored in this much hike. The hike is already priced in, allowing inflation and debasement concerns to support hard assets. Such a move will be conducted as neutral, and the directional move will be based on the technical formations, after a massive swing to cover speculative positions.
The second scenario is if the Fed keeps the rate unchanged, against market expectations. Investors will focus on efforts made to combat energy-driven inflation, which will likely cause gold to lose some shine, as it has already lost its safe-haven appeal a long time ago, and the futures could generate indecisive moves. Undoubtedly, this could be a surprise pause.
The third scenario is if the Fed cuts interest rates by 25 basis points, under the influence of the US President Donald Trump, as his emphasis remains on keeping interest rates low; a short-term bounce could be there due to speedy short-covering, as the repeated test of key resistances signals a large build-up in short positions, as the majority of bets are in favour of the rate hike of at least 25 basis points this time.
The fourth scenario could be a rate hike of 50 basis points, though highly unexpected; gold futures could experience a gap-down while bond yields could turn volatile, as money could shift from risky assets to bonds, as this will be considered a perfect attempt to control the energy-driven inflationary fear, which is pushing the global economy to experience a headset pinch than ever before in the near term, if the US-Iran conflict stretched even up to November mid-term elections in the US.
I find this possibility plausible, as the Federal Reserve has to take a bold step to damage control a big agenda, as the other central banks have done so to defend their respective currencies recently.
Undoubtedly, if the Fed remains unaffected by political pressure to raise the confidence of the Americans in its independent status quo at such a crucial point when most of the Americans want to open the Strait of Hormuz (especially as gas prices rise back home), to stop Iran’s nuclear program, and to stop Iran from threatening the region.
But that doesn’t mean people think it’ll be easy, and most suspect the conflict will last months or even years longer.
Given that, a preference for ending the war — as opposed to pressing for more concessions from Iran — remains the majority view.
People still don’t feel they’re getting an understanding of what’s happening day to day in the Strait of Hormuz, a feeling that has not abated over months and weeks.
And to most, President Trump isn’t helping in that search for clarity in the public, as most feel Mr. Trump makes things sound better than they are.
I find that immediate reactionary moves don’t give a clear indication; the best option is to control emotions first, and then take a positional call before markets close, as the currently appearing key supports and resistance on the daily chart matter a lot for the rest of this week.
Technical Levels to Watch
On a monthly chart, after opening this month at $4,498.70, testing the month’s high at $4,558.50 and the month’s low at $4,293, gold futures are trading at $4,378.75, just below the key support at $4,402.59, signalling weakness.
Undoubtedly, a close below the key support at the 20 EMA ($3,991) will confirm continuation of a bearish trend during the rest of the months of this year.
On weekly chart, after opening this week at $4,375, tested the day’s high at $4,401.65, and the day’s low at $4,293, gold futures are trading near the week’s high but facing significant resistance at the 20 EMA ($4,406), and the 9 EMA ($4,402), signalling a breakout above this could push the next key resistance at $4,494, where a breakout could continue an uptrend.
Inversely, a breakdown below the immediate key support at the 50 EMA ($4,288) could push the futures to test the next key supports at $4,250 and $4,180.
On a daily chart, after opening the day at $3,24,22, tested the day’s high at $4,401.65, and the day’s low at $4,315.25, gold futures are trading at $4,384.65, signalling strength after finding support at the 50 EMA ($4,323.27), but facing significant resistance at the immediate key resistance at $4,399, which is much below the 9 EMA ($4,414), where a breakout above this could raise bullish sentiments tonight.
Inversely, a breakdown below the 50 EMA ($4,323) could accelerate a selling spree.
