Oh how quickly things can change!
This time last week, gold bulls were riding high, with the yellow metal trading near a 5-month high after a couple-month run outperforming other safe haven and store of value assets…until the script flipped this week.
A hotter-than-expected PPI report on Tuesday, followed up by yesterday’s far more-hawkish-than-expected FOMC meeting, has contributed to a big 100+ point drop in the precious metal so far this week, unwinding nearly six weeks’ worth of gains and leaving gold essentially unchanged over the last year. With inflation on the rise and nearly half (7/17) Fed officials now anticipating at least one rate hike by the end of the next year, the announcement of the central bank’s tapering timeline may be relatively imminent; in other words, one of gold’s biggest tailwinds (unprecedentedly easy monetary policy) may be ending far sooner than many bulls expected.
From a technical perspective, gold has crashed through its two-month bullish channel and as of today, is trading back below its 200-day EMA and the $1800 handle. Looking at the 14-day RSI indicator, prices are peeking into oversold territory for the first time since March, so there is some potential for a short-term bounce around $1770 or $1730 (the 61.8% and 78.6% Fibonacci retracements of the April-May rally), but as long as the precious metal remains below the 200-day EMA near $1800, the path of least resistance will remain to the downside:
Source: StoneX, TradingView
Traders are still picking up the pieces from yesterday’s paradigm shift from the Fed, but one thing is clear: it’s a lot less attractive to own gold than it was last week!
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