Gold price rebound collapses as Fed reveals tentative timeline to cut QE


Gold Price Talking Points

The price of gold retreats to a new weekly high ($ 1,787) even as the Federal Reserve maintains the current course of monetary policy as the central bank presents an interim exit strategy.

Gold price rebound collapses as Fed reveals tentative timeline to cut QE

Gold prices keep the streak of higher highs and higher lows from the start of the week as the Federal Open Market Committee (FOMC) remains on track to “increase its holdings of treasury securities by at least $ 80 billion per month and agency mortgage-backed securities by at least $ 40 billion per month,” and bullion may stage a larger recovery during the rest of the month, such as the president’s decision Jerome Powell and Co. weighs on US Treasury yields.

Nonetheless, it looks like the FOMC is gearing up to change gears later this year because “the Committee considers that a moderation in the pace of asset purchases could soon be justified“, and Fed officials could present a more detailed strategy before the end of the year as President Powell reveals the central bank could start cutting its quantitative easing (QE) program” as early as the next meeting ” .

Source: FOMC

During the press conference, President Powell went on to say that it “may be appropriate” to gradually reduce the non-standard measure by mid-2022, as the updated summary of economic projections (SEP ) shows that the U.S. economy will grow 3.8% next year from the 3.3% forecast presented in June, and speculation about an imminent change in Fed policy could limit the price of l ‘gold in the midst of the unsuccessful attempt to disengage the July high ($ 1,834).

That being said, the The price of gold may attempt to stage a larger rebound over the remainder of the month as it manages to hold onto the streak of higher highs and lows from the start of the week, but the the rebound from the August low ($ 1,682) may turn out to be a correction in the general trend rather than a change in market behavior, as the FOMC is preparing to change gears.

Daily Gold Price Chart

Image of daily gold price chart

Source: Trading view

  • Keep in mind that the negative slope of the 200-day SMA ($ 1806) indicates that the general trend for bullion remains on a downward trend, with the formation of a “death cross†taking shape in August as the Relative Strength Index (RSI) pushed into oversold territory.
  • However, the lack of momentum to test the March low ($ 1,677) generated a signal to buy textbooks in the RSI as the oscillator climbed back above 30, the move above the region of $ 1,786 (38.2% expansion) pushing the price of gold above the 200- Day SMA ($ 1806).
  • Nonetheless, the rebound from the August low ($ 1,682) may turn out to be a larger trend correction rather than a change in market behavior amid the failed attempt to erase the most. July top ($ 1,834), and the lack of momentum to close above the $ 1,786 (38.2% expansion) region could push the price of gold down towards the Fibonacci overlaps around $ 1743 (23.6% expansion) to $ 1763 (50% retracement).
  • A break out of the monthly low ($ 1743) opens the region of $ 1690 (61.8% retracement) to $ 1695 (61.8% expansion), with a move below the August low ($ 1682) bring it March low ($ 1,677) on the radar.
  • Need a fence over the $ 1,786 (38.2% expansion) region to open the area from $ 1,816 (61.8% expansion) to $ 1,822 (50% expansion), with the next area of ​​interest around $ 1,837 (38.2% retracement) to $ 1,847 ( 100% expansion).

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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