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Gold Forecast: Signs Of Bottoming Out Ahead Of The Fed?

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Gold is showing signs of bear market exhaustion ahead of the all-important FOMC rate decision, indicates technical charts.

As of writing, the metal is trading at $1242 levels. It clocked a 4-1/2 month low of $1237.22 yesterday. The metal's descent began in late November following repeated failure to hold above $1290 levels. As seen on the chart below, the bears appear in control, still, there are signs of an exhaustion.

4-hour chart

The above chart shows:

  • The falling channel is intact
  • Bullish price-RSI divergence
  • Bullish price-stochastic divergence

Daily chart

The above chart shows:

  • Yesterday's candle was a doji
  • The stochastic is turning higher from the oversold territory
  • The RSI also shows oversold conditions

The bullish divergence seen on the 4-hour chart shows the bearish move is running out of steam. Also, yesterday's doji candle shows indecision/bearish exhaustion in the marketplace.

Still, it is too early to call a bottom as the falling channel is intact. Only a 4-hour close above the channel resistance (currently seen at $1247) would indicate the metal has made a low at $1237.22 and could yield rally to $1260 levels (38.2% Fib R of the recent sell-off). Such a move looks likely as a 25 basis point Fed rate hike has been priced-in.

Buy the fact?

The 2-year yield, which mimics short-term interest rate/inflation expectations, has jumped close to 60 basis points since late September. Meanwhile, the metal has dropped more than $50 in the last two weeks.

Clearly, the rate hike has been baked in. Hence, the yellow metal could witness a bullish break of the falling channel following the rate hike decision.

It could drop further towards $1200 only if the Fed dot plot chart shows the next rate hike could happen in March contrary to the market expectation that the next rate hike would happen in June.

 

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Posted-In: Forex Markets