Gold Losses Drive Prices into Critical Support Ahead of FOMC Rate Decision

London (Dec 10)  Gold prices fell for the third consecutive week with the precious metal down more than 2.5% to trade at 1247 ahead of the New York close on Friday. The losses come on the back of continued strength in the greenback with the DXY up nearly 0.9% as the focus now shifts to the Fed ahead of next week’s FOMC policy decision. Equity markets have also remained well supported throughout with all three major US indices trading higher into the close. 

All eyes will be on the central bank next week with the Fed widely expected to hike interest rates by 25bps. The focus will be on the fresh quarterly projections on inflation, growth, and employment with the updated interest rate dot-plot of the utmost importance as traders weigh the outlook for monetary policy heading into 2018. Note that back in September, the dot-plot showed a median expectation that rates will be at 2-2.25% into next year with the longer-run (natural) rate steady at 3%. 

Ultimately, the inflation outlook will likely be lead here as price growth (specifically wage growth) continues to persistently run below the Fed’s 2% target. Keep in mind that we also get the release of U.S. CPI figures just ahead of the policy announcement on Wednesday. The implication for bullion prices could be significant – remember that expectations for higher rates tend to weigh on the price of non-yielding assets like gold which does not pay a dividend. That said, tomorrow’s hike is largely priced in with markets largely calling for 1-2 hikes next year – the Fed dot plot (as of September) suggests 3-4 hikes. Look for changes in this spread to drive market reaction. 

Last week we noted that, “the technical outlook heading into the December open allows for some further losses before risking major damage to the broader uptrend in bullion prices.” Indeed the losses have now taken prices to critical levels which if compromised, could change the broader outlook heading into the 2018 open.

DailyFX

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