Gold Price Talking Points

The price of gold continues to consolidate ahead of the Federal Reserve interest rate decision in July 31, but the looming shift in US monetary policy may heighten the appeal of the precious metal as market participants look for an alternative to fiat currencies.

Gold Price Forecast: Topside Targets on Radar Ahead of FOMC Meeting

The Federal Open Market Committee (FOMC) appears to be on track to insulate the US economy from the shift in trade policy as the Trump administration struggles to reach an agreement with China.

The latest speech from Fed Chairman Jerome Powell suggests the central bank will switch gears as “many participants indicated that the case for somewhat more accommodative policy had strengthened,” and the central bank may come under increased pressure to reverse the four rate hikes from 2018 as President Donald Trump tweets that “a small rate cut is not enough.”

It remains to be seen if the FOMC will establish a rate easing cycle as “the labor market was likely to remain strong with economic activity growing at a moderate pace,” and the committee may ultimately vote for an ‘insurance cut’ as the fresh updates to the US Gross Domestic Product (GDP) report show little signs of an imminent recession.

However, Fed Fund futures reflect expectations for more than one rate-cut in 2019, with market participants currently pricing a greater than 70% probability for another reduction at the September 18 interest rate decision.

In turn, the Fed’s forward guidance for monetary policy is likely to impact the near-term outlook for gold, but the threat of a policy error may push investors to hedge against fiat currencies as there appears to be a flight to safety.

With that said, gold prices may exhibit a more bullish behavior over the coming days, and the precious metal looks poised to extend the advance from the monthly-low ($1382) as it breaks out of a holding pattern.

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Gold Price Daily Chart

The broader outlook for gold is no longer mired by a head-and-shoulders formation as both price and the Relative Strength Index (RSI) break out of the bearish trends from earlier this year.

Moreover, the recent pullback in bullion appears to have run its course as the Fibonacci overlap around $1380 (100% expansion) to $1385 (78.6% expansion) offers support, and the price of gold may exhibit a more bullish behavior as it breaks out of a triangle/wedge formation.

In turn, topside targets are back on the radar as gold continues to track the upward trend from earlier this month, with a break/close above the $1444 (161.8% expansion) to $1448 (382.% retracement) region raising the risk for a more meaningful run at the $1457 (100% expansion) hurdle.

Next area of interest comes in around $1467 (50% expansion) followed by the $1488 (61.8% expansion) region.

For more in-depth analysis, check out the 3Q 2019 Forecast for Gold

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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.