Gold price edged lower on Monday ahead of the Fed interest rate decision. Hints of further aggressive tightening of its monetary policy in subsequent months may push the precious metal below the previously steady support zone of $1,650 per ounce.
What to expect in the new week
Gold is a conventional safe-haven in times of geopolitical and economic turmoil. It is also a hedge against inflation. However, the market has overlooked this aspects in recent months amid an ultra-hawkish Fed and subsequent strength of the US dollar.
As is the case with other dollar-priced assets, gold price tends to move inversely to the value of the greenback. Besides, an environment of high interest rates exerts pressure on the non-yielding bullion.
In the new week, the focus will be on the Fed interest rate decision scheduled for release on Wednesday. Economists expect the central bank to approve a rate increase of 75 basis points; the third super-sized hike in a row.
Investors will also be keen on cues on whether the Fed will continue with the aggressive tightening of its monetary policy in subsequent months. This comes after August’s CPI signalled that US inflation levels are yet to peak.
Gold price prediction
In July, gold price hit its lowest level year-to-date at 1,680. Subsequently, it rebounded to the critical support-turn-resistance level of 1,800; prompting the forecast that it may have found its short-term bottom. It has since invalidated that prediction after dropping past July’s low in the past week. On Friday, it dropped to its lowest level since April 2020 at 1,654.45.
A look at its daily chart points to further losses as it continues to trade below the 25 and 50-day exponential moving averages. In the immediate term, gold price will likely continue to find support at 1,654.45 as investors await further cues from the Fed policy decision. Until then, the precious metal may remain within a horizontal channel with 1,680.39 as the range’s upper border.
Hints that the Fed will remain aggressive in its interest rate hikes in coming months may push gold price past 1,650; a level it has has been trading above since the onset of the coronavirus pandemic. If that happens, the bears will be keen on pulling it lower to 1,600. However, this bearish will be invalidated by a move above the 25-day EMA at 1,715.