Gold Price Forecast: Range play intact, focus on Fed's forward guidance

Gold is stuck in a narrow range and could suffer a downside break if the Fed stresses on overshooting the neutral interest rate.

At press time, the yellow metal is trading at $1,196, having clocked a seven-day high of $1,211 and ten-day low of $1,192 earlier today.

Essentially, gold has created a big bearish outside-day candle today, still, the immediate bias remains neutral, the technical chart indicates. 

Daily chart

As can be seen, the yellow metal is trapped inside a channel since the end of August. A close above the top end of the channel would signal a continuation of the rally from the recent low of $1,160 and may allow a break above the trendline sloping downwards from April highs.

Meanwhile, a break below the channel support could be considered a sign the corrective rally has ended and could yield a re-test of the August low of $1,160.

Focus on the Fed

The US central bank is seen raising rates by 25 basis points next week. Further, there is widespread belief that the Fed is on autopilot until neutral is reached. All this is already priced-in by the markets.

More importantly, the market is not pricing in rate hikes beyond neutral. As a result, the US dollar - gold's biggest nemesis - would pick up a strong bid only if the central bank stresses overshooting inflation. In that case, gold could drop below the August low of $1,160.

On the other hand, the yellow metal will likely rise sharply if the Fed evinces tolerance to above-target inflation. It is worth noting that the dollar index is already on the defensive, as indicated by the head-and-shoulders breakdown. Hence, prospects of gold witnessing a bullish channel breakout are high.