Key Points
- Fed Chair Jerome Powell’s press conference at 2:30 PM EST is the key market driver for gold.
- Rates are expected to remain static. Any suggestion that September rate cuts are on or off will send the XAU/USD reeling.
- The key technical level for gold is $2,500.
Market Overview
July has been a largely rotational month for gold (XAU/USD). Prices have stagnated in the $2,400 – $2,475 area amid heavy two-way participation. With July’s Fed meeting underway, traders are debating whether a late-year breakout above $2,500 is in the cards.
The Fed Speaks!
Wednesday is a big session for the world of finance. The US Fed will take center stage, issuing its latest interest rate decision. Analysts widely expect the Fed to hold the Federal Funds Rate at current levels.
However, the markets are pricing a 100% chance of at least a ¼ point rate cut for September. That’s why Jerome Powell’s presser and forward guidance will be the key market drivers, not the official announcement. If there is any deviation from the September rate cut talking points, equities and commodities will likely be headed south.
So, what is expected from the Fed? Here’s what the VP of Investment Strategy at Glenmede, Michael Reynolds, had to say on the subject:
“Our expectation is that they’re going to keep rates unchanged. But there’s going to be a lot of focus on the post-meeting statement, perhaps teeing up September as whatever the opposite of liftoff is.”
In other words, the world is waiting for J. Powell to confirm that September rate cuts are now on the table. This is a double-edged sword. If Powell goes dovish, stocks and commodities are likely to rally. If not, be ready for a late-week correction.
XAU/USD Technical Outlook
At press time, the biggest level on the board for gold (XAU/USD) is $2,500. $2,500 represents a big round number and an area of natural resistance. For all intents and purposes, it is the premier technical zone for gold.
A few weeks back, the XAU/USD rose to highs just above $2,480. Now, prices are back on the bull above $2,400. If bidders drive the market to $2,492- $2,497, expect heavy short-term selling to defend the $2,500 threshold. Short scalps from this zone are high-probability trades; but if $2,500 is taken out, the topside rally could easily test $2,750 quickly.
Protection Is Key
Any time vital events such as a Fed meeting, BoE announcements, or Non-Farm Payrolls occur, volatility is guaranteed. During the US overnight, this concept was proven again with the huge JPY action following the BoJ’s surprise rate hike.
Limited leverage and stop losses are advised to manage the chaos. After all, there’s no point blowing out a trading account amid such a powerful news cycle. Caution is the better part of valor—trading is a marathon, not a sprint!
Risk Disclosure: The information provided in this article is not intended to give financial advice, recommend investments, guarantee profits, or shield you from losses. Our content is only for informational purposes and to help you understand the risks and complexity of these markets by providing objective analysis. Before trading, carefully consider your experience, financial goals, and risk tolerance. Trading involves significant potential for financial loss and isn't suitable for everyone.
