Gold Bounces From Critical Support Ahead of Fed

After a sharp two-day drop in the price of gold, the shiny metal is catching a firm bid from an important support area.

Gold Daily Chart

Gold prices were under pressure after a fake upward breakout on Friday but buyers have held the yellow metal above support ahead of today’s Fed meeting.

Fed Widely Expected to Cut Rates

The markets have fully priced in a rate cut at today’s Fed meeting and are pricing in about a 1 in 5 chance of another cut by the end of the year.

There certainly seems to be a pattern here when looking at US monetary policy expectations and how the markets are positioned. Time again the markets have had a much more negative view towards the US economy compared to Fed communication. In past meetings, the central bank has acknowledged risks to the economy but has refused to take an aggressively dovish stance toward monetary policy.

I expect Fed Chair Powell will stick to his usual script and deliver a rate cut while holding a data-dependent stance on future decisions on monetary policy. In this context, perhaps the markets are getting a bit ahead of themselves in pricing in some potential for another cut beyond today.

The focus of today’s meeting will tend to be on forward guidance. So if the Fed does signal that more cuts are coming, gold prices stand to rally. Ahead of the Fed meeting, GDP figures for the third quarter will be released. As this is a first reading, a volatile reaction is expected.

Critical Support in Play

There is a support level, or rather area that I’ve had a close eye on for the last couple of week. It falls around $1486 and managed to trigger a bit of a recovery since yesterday.

Simply put, if this level breaks, I would expect that the downtrend that has been playing out since early September remains intact. In such a scenario, I would be targeting a decline to $1440 which is a level that has quite a bit of technical importance.

While the technicals don’t show a clear picture at this time, I have a slightly bullish bias. I think the correction from September highs has finished. I’m looking for further confirmation that gold will resume in the broader uptrend. A sustained break above $1500 would provide that confirmation.