FUNDAMENTAL
OVERVIEW
Gold sold off yesterday as the Fed delivered a hawkish surprise by projecting
a rate hike this year in the dot plot, effectively adopting a tightening bias
in the short-term. Following the first spike lower, the price consolidated a
bit as traders waited for Fed Chair Warsh’s first press conference. Once
everyone realised that he wouldn’t add anything new and wouldn’t give any
forward guidance, the losses extended as the bearish bets increased on higher real
yields.
The economic data and financial markets will now guide the Fed as Warsh stated
that “financial markets perform best when they react to incoming data and are
less efficient when they have to ask how the Federal Reserve will react to the
incoming data”. He added that “financial markets are the most important source
of information to guide the central bank”.
Trump also posted on Truth Social and, unlike his usual stance under Fed
Chair Powell, did not object to the Fed’s decision. In fact, he said
that “rate hikes could happen,” which sounds like a green light for Warsh
and the Fed to do whatever they deem necessary.
The signal is that the Fed is finally looking to deliver on its price
stability mandate and bring inflation back to the 2% target that it’s been missing
since 2021. If the data says they need to hike, they will.
Traders are now pricing in a 30% chance of a rate hike at the next meeting
in July, which rises to 65% for September (the most likely scenario). There’s a
total of 37 bps of tightening priced in by year-end compared to just 18 bps
before the Fed’s decision. This should keep weighing on gold at least until the
next set of economic data.
As mentioned previously, the risk now is that the negative supply shock caused
by the US-Iran war turns into a positive demand shock as the conflict ends and
oil prices drop significantly. That could boost economic activity further
requiring rate hikes anyway.
GOLD TECHNICAL
ANALYSIS – DAILY TIMEFRAME
Gold – daily
On the daily chart, we can
see that gold rejected the previous swing low around the 4,360 level and
dropped on the hawkish Fed decision. The price is now testing the major upward trendline
with the buyers stepping in with a defined risk below it to target a break
above the 4,360 level and extend the rally into the 4,600 level next. The
sellers, on the other hand, will want to see the price breaking below the
trendline to increase the bearish bets into the 3,885 level.
GOLD TECHNICAL ANALYSIS – 4
HOUR TIMEFRAME
Gold – 4 hour
On the 4 hour chart, we can
see the positive gap was closed following the selloff after the Fed’s decision.
The price bounced on the support zone around the 4,240 level as dip-buyers stepped
in to position for a rally into new highs. The sellers will want to see the price
breaking the support to pile in for a drop into the 3,885 level next.
GOLD TECHNICAL ANALYSIS – 1
HOUR TIMEFRAME
Gold – 1 hour
On the 1 hour chart, there’s
not much we can add here but if the price gets stuck in the 4,240-4,360 range,
we can expect the sellers to keep stepping in around the resistance and the
downward trendline to keep pushing into new lows, while the buyers will need a
break higher to open the door for new highs. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today, we get the latest
US Jobless Claims figures.
