As speculations on another Fed rate hike and a strengthening dollar returned in European trade, gold prices continued to decline. Last week, US GDP and core inflation statistics both injected a fresh bout of rate hike confidence helping the DXY reduce some early week losses, shattering any dreams of an early turn by the US Federal Reserve.
But the future prognosis is still hazy as we get closer to this week's conference. This occurs at a time when a number of Federal Reserve policymakers have recently toned down their statements on rate increases after Thursday's meeting. Some authorities have changed their stance due to concerns that the possibility of entering a recession could lead to more serious issues in the future.
Markets appear to be pricing in a less aggressive Fed at this week's meeting as a result of the shift in language, at least in terms of the forward guidance offered. Although further increases in interest rates are still anticipated to be supported by strong GDP and core inflation data, the likelihood of this happening has decreased over the previous week. Interest rates are still predicted to peak around the 5-5.25% range in early 2023. All of the aforementioned factors could indicate that the Fed's "shift" is imminent, making this week's meeting even more crucial.
The Federal Reserve is projected to take a slightly more dovish attitude, thus the only option to avoid a probable fifth rate hike of 75 basis points in December will depend on a slowdown in inflation data. This currently seems to be a pipe dream. The Federal Reserve's remarks on Thursday will continue to be closely watched as the likelihood of a 50 or 25 bp boost in December increases.
The non-farm payrolls report from the US will be the first important data release following the FOMC and will come later in the week. This will be interesting, especially if the Fed reiterates the need to closely monitor data prints in order to guide future hikes.
Technically speaking, the precious metal recorded its sixth straight month of losses last week as the month came to a close. We are still trading in the $1614–$1670 range since any gains made last week were restrained due to a lack of a meaningful catalyst.
A shooting star candlestick close on the weekly period gave us a hint that there might be more downside. Given that the FOMC is likely to deliver the dollar's future volatility and certainty, gold has to break out of this range.
The 20-SMA and $1670 resistance region serve as a daily period ceiling for advances. A rally might occur if the daily candle breaks and closes above resistance, while a breach below the year-to-date (YTD) low around $1614 could lead to further decline.
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