Gold faces key test amid central bank meetings

Gold faces an important few days as three major central banks announce their respective policy decisions. All bar one is expected to make a rate change and that’s the Federal Reserve today. According to the to the CME’s FedWatch tool the probability of a 25 basis point rate increase is 96%, which means it is more or less already priced in. That may help explain why the dollar has stopped going up since the end of May. Market participants will be looking for signs that the Fed is growing increasingly wary of rising price pressures, especially after May CPI hit a 6-year high of 2.8% year-over-year as we found out on Tuesday. Any hawkish signs in the FOMC statement, dot plots or remarks from the Fed Chair Powell could lead to an increase in the probability of two further rate increases before the year is out. This outcome may well support the dollar and undermine buck-denominated gold. That’ll be at least until Thursday’s policy decision from the European Central Bank. Several officials from the ECB have talked up the prospects of ending QE this year owing to concerns over inflation. If the ECB does turn out to be hawkish than expected, then this may support the EUR/USD exchange rate and potentially the positively-correlating gold prices (in dollar terms), too. Similarly, if the Bank of Japan appears to be less dovish than expected on Friday then this too may underpin the yen in the expense of the dollar, which, in turn, may underpin gold. So, just because central banks may be turning hawkish, it doesn’t necessarily mean gold will go down (because of the indirect impact of the exchange rates). That being said however, rising interest rates or expectations thereof are usually not good for noninterest-bearing assets like gold and silver. Thus, it remains to be seen whether gold will be able to find buyers this week. Ahead of these central bank decisions, the yellow precious metal was holding inside a tight range below $1300 and thus below the pivotal $1307 level. The latter was a previous support-turned-resistance level and corresponds with the 200-day moving average. A clean break above this level would be a prerequisite therefore for sentiment to turn bullish; more so if gold goes on to break its most recent swing high at $1325. Until and unless that happens, the technical bias remains bearish. A clean break below support at $1293 would strengthen the bearish case and could potentially trigger significant follow-up technical selling.


Gold Daily

Risk Warning Notice Foreign Exchange and CFD trading are high risk and not suitable for everyone. You should carefully consider your investment objectives, level of experience and risk appetite before making a decision to trade with us. Most importantly, do not invest money you cannot afford to lose. There is considerable exposure to risk in any off-exchange transaction, including, but not limited to, leverage, creditworthiness, limited regulatory protection and market volatility that may substantially affect the price, or liquidity of the markets that you are trading. Margin and leverage To open a leveraged CFD or forex trade you will need to deposit money with us as margin. Margin is typically a relatively small proportion of the overall contract value. For example a contract trading on leverage of 100:1 will require margin of just 1% of the contract value. This means that a small price movement in the underlying will result in large movement in the value of your trade – this can work in your favour, or result in substantial losses. Your may lose your initial deposit and be required to deposit additional margin in order to maintain your position. If you fail to meet any margin requirement your position will be liquidated and you will be responsible for any resulting losses.