Gold prices continue to remain locked in a tight range ahead of today’s key statement from the US Fed, and with interest rates likely to remain on hold for the time being, it will be tone of the associated statement that is likely to be watched most closely. The tone of the statement is expected to be more positive, and in contrast to market reaction to Brexit which provided a much needed escape route for the committee.
Since then, the markets have calmed and resumed normal service, with the sky not falling in on the UK! If the tone of the statement is more hawkish, and signalling an earlier than expected move to raise rates, this is likely to impact gold prices dramatically, and if so, could trigger a strong move away from the current congestion phase which has been building for some time. Indeed holdings in the world’s largest gold backed fund, the SPDR Gold Shares (NYSE:GLD), fell by a further 4.5 tonnes earlier in the week. taking the total to 954 tonnes and well below the levels of three weeks ago. The key will be the Fed’s view on inflation longer term with the up trend in US economic data in sharp contrast to the downtrends currently in play around the world, with the UK likely to reduce rates still further in August, and with the Eurozone now beginning to fragment and weaken.
From a technical perspective gold remains firmly anchored in a narrow channel with the ceiling at $1334 per ounce, and the floor of support in the $131o per ounce area. Volumes remain average as the precious metal now awaits the catalyst of the Federal Reserve. Any move away from this channel is then likely to signal a pick up in trend, with a move to the downside likely to test the next area of potential support which awaits in the $1290 per ounce area. Once through this area a consolidation phase may build around the volume point of control in the $1280 per ounce area. Finally it is important to note we are still trading within the range of the Brexit candle, and until this is cleared in either direction, gold prices are likely to continue to oscillate in this wide region.