“Bears in Control” of Gold Price: Will the Fed’s Announcement Next Week Be a Shocking One?

After falling $ 40 this week, the gold bears are eyeing the market in what analysts say could be a restrictive Federal Reserve meeting next week.

Gold fell to a four-week low on Thursday, falling from over $ 1,790 an ounce to $ 1,750 an ounce after much stronger US retail numbers. This is important news ahead of the Fed’s rate announcement on Wednesday as it could spell a tightening sooner rather than later.

“The bears are in control now. We had a complete turnaround in retail sales. This reinforces the idea that the Fed’s hand is being forced to taper, ”Frank Cholly, RJO Futures’ senior market strategist, told Kitco News. “Right now gold is in a new trading range. The short-term trend is down.”

If US economic data continues to surprise positively, gold could face another sell-off. “We’re seeing yields picking up and the US dollar is strong. It’s putting pressure on gold. We could see $ 1,720 next week. I don’t think it will be hard to take another $ 30 off the market.” “said Cholly.

Another problem facing gold right now is the lack of interest from new buyers, said Bart Melek, head of global strategy at TD Securities.

“Traders are ready to sell on any suggestion that economic activity is better than expected because they believe the Fed will not hesitate to start slowing,” Melek said.

Gold has also ignored its usual drivers and instead focused on macro data, noted Gainesville Coins precious metals expert Everett Millman.

“Gold is conveniently between $ 1,700 and $ 1,800 an ounce. Unless we get surprising data, I don’t expect the precious metal to see outrageous swings one way or another, ”Millman told Kitco News. “The $ 1,740 level is support and the resistance is at $ 1,770-1,800.”

What can we expect from the Fed?

The focus is now on the Fed statement on Wednesday, with markets paying close attention to every detail at the time of topping up bond purchases, Millman said. “The Fed has set the course, and everyone knows that there will be a tap soon. The central bank doesn’t have to postpone this until December at the latest, ”he said.

Going forward, the US Federal Reserve will closely monitor US inflation and employment data as it updates the market on its future tapering plans.

“If the Fed does nothing on Wednesday but signals that it has a plan and will do something in December, it will be good for gold. The gold market wants rates to stay low,” added Millman.

It is unlikely that God will fall much lower even if the Fed announces something, stressed Melek.

“I don’t think we are at great risk of a sell-off here. There is still a belief that interest rates won’t really be a major concern. To me, it suggests there will be a taper but it won’t be overly aggressive, “he said.” When we look into next week’s FOMC meeting, we could see some pretty strong evidence. On the downside, $ 1,740 is still pretty decent support. We could get into the $ 1,730 mark. But I don’t see complete defeat. “

The Fed will also publish its updated economic forecast and the point plot.

“New forecasts will show a slight downward revision of growth with an upward revision of inflation. The big story could be the Fed’s single point forecast for rate hikes. Currently, 7 out of 18 officials are starting rate hikes in 2022, and we could envision one or two more moving forward their forecast to 2022. We suspect the median will stay at 2023 for now, but it will be a close decision, ”said ING chief economist James Knightley.

Data to look at

Other data to watch next week include building permits and starts on Tuesday, existing home sales on Wednesday, the Bank of England’s interest rate announcement on Thursday, and U.S. unemployment claims and new home sales on Friday.

In addition, Fed Chairman Jerome Powell will be opening speeches at Friday’s virtual Fed Lists event entitled “Perspectives on Pandemic Recovery”.

Canada will also go to the polls on Monday after Prime Minister Justin Trudeau called early elections to try to get a majority rule.

“Things don’t seem to be going according to plan when Trudeau’s Liberal Party is now head to head with opposition Conservatives on taxes and spending,” Knightley said.