Gold Price Forecast: XAU/USD poised for significant sell-off, but short squeeze not off the table around Fed
- Gold is poised for another downside but a short squeeze is not off the table.
- The Fed at the top of the hour is expected to seal the deal one way or another.
As per the pre-open analysis on gold for the week, Gold, Chart of the Week: XAU/USD bulls need to commit or face an avalanche of supply, where the bears committed to below $1,885, the downside risk to May 16 lows at $1,786 and beyond have been opened.
The W-formation's neckline failed to support and as such, the price has broken not only that horizontal support but also the dynamic trendline support as follows:
With the price embedded deeply below resistances, the bulls have a tall order if they are going to break out o the bear's cage. The path of least resistance is to the downside. With that being said, volatility could see retests of resistance, where the 61.8% Fibo aligned with the counter trendline will be the last defence on the upside. A sell-the-news rally could catalyze a counter-intuitive knee-jerk reaction in gold.
Analysts at TD Securities said, ''with markets already nearly fully pricing in two consecutive 75bp hikes, gold and risk markets alike could be set-up for a short-squeeze, which has typically served to shake weak shorts out of the markets and spark some optimism that the worst is over, which ultimately sets the market up for the next leg lower thereafter.''
The Fed's communication will be key in this regard, no matter if today they hike by 50 or 75bps. A 100bp hike would be a catalyst for huge volatility but the yellow metal should ultimately succumb to the Fed's fight against inflation.
Author
Ross J Burland
FXStreet
Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.
