The Takeaway from Fed Meeting Minutes
The Federal Reserve will keep its powder dry over the near-term, something that was largely expected and communicated in the press conference that followed the last meeting. As such, we are seeing a minimal reaction to the price of gold.
The bigger reaction was after the meeting itself, which saw the price of gold tumble to eventually find buyers just below the $1450 price point. The price action is fairly important and goes to highlight how important Fed decisions are for gold prices.
One of the main drivers of the current rally in gold prices has been the expectation of Fed easing. But more importantly, easing despite inflation levels mostly staying put. This has caused a decline in real rates, which makes investments into gold that much more attractive. For that reason, it is not a big surprise that gold prices have come off their highs for a notable period now.
It’s an interesting time in the markets as the decline in real rates has caused equities and precious metals to rally at the same time. Looking at the technical indicators, there is little reason to believe this will end anytime soon. But of course, without further easing, the yellow metal is at risk for further losses.
From a technical perspective, there are a few things in play. On a 4-hour chart, there is a rising trend channel which has held the price of gold higher thus far. While within this uptrend channel, there is little reason to believe the shiny metal will resume lower.
On a daily chart, however, candlestick patterns suggest exhaustion at a fairly important resistance level. This level comes in at $1472 and marks the lowest daily close in September. Further, the 20 and 100-day moving averages have converged just above the level to create an even stronger confluence of resistance.
With the broader downtrend, it is difficult to play the long side in gold at the moment. But the smaller time frames certainly show some potential for at least another leg up.
The equity markets are under pressure which stands to underpin gold prices a bit. Further, the dollar is showing signs of turning lower once again as the US dollar index (DXY) has posted a reversal candle on a daily chart. Both of these will tend to limit the downside if these trends remain intact.
USD/JPY is one to watch in the session ahead. The currency pair caught a strong bid from support around 108.31. This is the same level that held it higher in the middle of the month which led to a rally above 109.
USD/JPY dipped to the level earlier in the day and has erased losses from the early day at this point. If the pair turns to positive territory for the day, we might just see gold prices come under pressure and breakdown.
The 10-year Treasury yield has declined in seven out of the past nine sessions. In the early day, the yield is catching a bid and if this turns into something more meaningful, gold prices would stand to lose. On a 4-hour chart, a bullish engulfing candle is in the making for the 10-year yield, the reaction around the US open will be important.