On Tuesday, November 1, simultaneously with the beginning of the two-day meeting of the Federal Reserve, the US dollar slowed a bit and Gold regained all of its yesterday loss, moving still higher. For the gold market, now everything depends on the Fed’s decision and its statement.
Rapidly rising interest rates by major central banks, somehow melted the yellow metal, as it increased the US dollar value. However, after the less hawkish decision made by RBA in both October and November meetings and the BoC October meeting, now traders are increasingly expecting the Fed to join the club to slow the pace of tightening measures.
Gold market and Fed meeting
We have different scenarios for gold and its reaction to the Fed’s decisions. As the market already priced in a 75-basis point rate hike, and it is so likely to see that. Therefore, increasing rates by 75 basis points by itself is not a hawkish decision.
The expected decision for rate hikes, cannot encourage the USD bulls, which is positive for gold prices. However, if the rate raise would be more than 75 basis points, while the statement and Mr. Powell’s press conference, convey the sense of stricter policies, then we have to wait for another rally for the US dollar index and free fall in gold charts.
On the other hand, if the Fed raises the rates by 75 basis points but shows some signs of less contractionary policies for the next meetings in December and January, we will have pressures on the US dollar index and a fast jump in the Gold chart.
These two scenarios are the most possible scenarios that could be seen. All other options also will be summarized in three types: contractionary policy, expansionary or neutral policy. The expansionary or neutral policy will be negative for the US dollar index and positive for gold, while the contractionary policy will have an opposite reaction.
From the technical point of view, it seems like gold ending its downtrend. However, its uptrend could be trustable if it trades above 50-DMA and first resistance sitting at 1,677 and then can breathe above the second resistance in the Daily chart at 1,725 US dollars. On the flip side, breaching September 28’s low under 1,615 US dollars can open the doors for much deeper levels.