Gold prices moved lower on Wednesday but was unable to pierce through the July lows. Gold faces continued headwinds as the Fed remained on hold during the monetary policy meeting but signaled in their commentary that rates would likely rise in September. Fed funds are now pricing in nearly a 90% chance that the Fed will raise interest rates when they meet in December.
Gold prices continued to grind lower, but were unable to pierce through the July lows. The weekly trend line which was broken, continues to point to lower prices for the yellow metal. Support is seen near the July lows at 1,211, while resistance is seen near the 10-day moving average at 1,224. A break of the 1,211 level would lead to a test of the July 2017 lows at 1,204. Momentum is mixed, and nuetral as prices cannot seem to break down or rise. The continued tariff treat by President Donald Trump has been offset by higher interest rates. The 10-year treasury yield pushed through the 3% level, which buoyed the U.S. dollar and generated headwinds for gold prices. Since gold is priced in U.S. dollars a stronger greenback makes gold more expensive in other currencies.
The Fed Remains on Hold, But for How Long
The Federal Reserve kept interest rates unchanged on Wednesday, but signaled to the market that they believe the economy is strong and they will likely raise rates when they meet in September. Wednesday’s move was widely expected, and the commentary from the Fed was hawkish. Higher rates, which are now in the cards will continue to generate headwinds for gold prices. The yields differential between the U.S. Treasury and the German bunds benefited the greenback. The positive for gold is that the global growth story is beginning to fall apart making gold more attractive in nearly every currency but U.S. dollars.