A More Hawkish Federal Reserve Continues to Pressure Gold Prices

Washington (Sept 29)  Although gold prices have traded higher today, prices have declined this week, this month, as well as the last two quarters. As of 4:30 PM Eastern standard time, gold futures are trading up by $7.90 and fixed at $1,195.30 per ounce.

This month’s FOMC meeting resulted in a highly anticipated rate hike of 1/4%. More importantly, it laid the groundwork for one more rate hike this year. The CME’s FedWatch tool is predicting that there is a 79.2% probability that there will be one last rate hike in December.

The more hawkish tone of the Federal Reserve has reignited selling pressure in gold as it has created strong tailwinds taking the U.S. dollar higher. It has been dollar strength that has been the most significant obstacle for gold pricing. Dollar strength is a direct result of higher interest rates, a favorable U.S. equities markets, and a growing U.S. economy.

A robust economy in the United States has created an extremely strong risk-on market sentiment. U.S. equities continue to trade to new record highs, and the bull market continues to have steam. As such, these factors continue to weigh heavily on gold pricing.

Gold prices broke and closed below a key psychological support level at $1,200 per ounce in trading this week. This is the first occurrence of gold trading under $1,200 since the week of August 13. Prior to that, gold had not traded at these levels since January 2017.

The fundamental factors which have been driving gold prices lower are still in play. Gold hit its highest price point with this year’s high in April, when it traded just shy of $1,370 per ounce. Since that point, gold has had a consistent and methodical price decline.

As long as these fundamental factors continue, gold pricing will continue to either trade to lower pricing or overcome extremely strong headwinds to eke out marginal gains.

Our technical studies indicate that there is support for gold pricing at $1,178 and at $1,164, the low gold traded to during the first week of August. These studies also indicate that the former level of support at $1,200 has now become the first level of resistance, with major resistance at $1,218.

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