Gold Price Prediction – Gold Fails to Break Out Despite Dovish Powell Commentary

Gold prices whipsawed initially moving higher in the wake of the Fed Chairs Speech. Fed Chair Jerome Powell said that rates where just below the range of neutral, which there market took as a dovish sign. This helped the 2-year yield move backward, allowing the dollar to ease paving the way for higher gold prices.

Technical Analysis

Gold prices rebounded from support near the 50-day moving average at 1,214.  Resistance is seen near the 20-day moving average at 1,220. Additional support seen under the 50-day moving average is an upward sloping trend line that connects the lows in August and the low in October which is seen near 1,205. Momentum has turned neutral as the MACD (moving average convergence divergence) histogram prints near the zero-index level with a flat trajectory which reflects consolidation.
The fast stochastic is also showing neutral momentum. The relative strength index (RSI) is printing a reading of 52, which is in the middle of the neutral range and reflects consolidation.

The Fed Ignites a Risk on Rally

The 2-year yield dropped 5-basis points in the wake of Powell’s speech.  The Fed chair said the central bank would be data dependent, and would continue to strive for neutral policy. By stating that the Fed was near a range that would be considered neutral, Powell reduced expectations that the Fed would increase rates by 100-basis points in 2019. The markets now believes that it is priced correctly, and that could cap upward momentum in the greenback. Since gold is priced in dollars, a weaker dollar will provide upside to the yellow metal. The Fed is next schedule to meet in December. Currently the market has a 100% chance that the fed will increase interest rates when it next meets. The markets will now focus on March 2019.  Given Powel’s commentary the market now believes that stronger data will be needed for the Fed to hike rates.