Fed Cheat Sheet: Playbook to a gold trading opportunity, levels to watch
- Markets have had a rethink about the Fed, now expecting a more dovish outcome.
- A "buy the rumor, sell the fact" response implies a downfall in stocks and yields, a downfall in gold.
- The overall calmer message implies selling opportunity on that initial reaction.
Gold is falling because yields are rising, and yields are rising as money currently moves from bonds to stocks. With S&P 500 futures rising more than 2%, we can expect stocks to fall – at least a bit, at least in the initial response – even if the Fed goes dovish. That slide in shares could send yields lower and gold higher. The recent high of $1,854 is the peak target.
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If XAU/USD fails to reach $1,854 and the Fed is indeed dovish, that would be a selling opportunity. If money resumes its flow to stocks, bonds will be sold off and yields would rise, making yieldless gold less attractive. Critical support is at $1,830.
Other levels include $1,870 on the upside, in case of a hawkish decision and $1,806 on the downside, in case of a surge in yields, as a result of the Fed going the other direction. It is essential to note that investors will first wait to hear from Powell before acting in full force.
More Fed Preview: Three ways Powell could out-dove markets, dealing a blow to the dollar
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Author
Yohay Elam
FXStreet
Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.
