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- Gold price holds its recent range after testing the $1,900 mark on Tuesday.
- 25 bps US Federal Reserve rate hike on the cards but Jerome Powell holds the key.
- Gold price could retest $1,900 but buyers may re-emerge, spurring volatility
Gold price is trading listlessly early Wednesday, lacking a clear directional bias, as traders move on the sidelines ahead of the all-important US Federal Reserve (Fed) monetary policy decision. The United States Dollar (USD) is struggling to find its feet amid weak US Treasury bond yields and cautious markets.
Federal Reserve decision to stir volatility
Ahead of the Fed decision, a fresh batch of United States economic data will also provide some incentives to Gold traders but the Gold price is likely to see a limited reaction to these data points. The United States economic calendar will feature the final S&P Global Manufacturing PMI, ISM Manufacturing PMI and JOLTS Job Openings data. Slowing economic activity could be a cause for concern for the Federal Reserve but it may have little impact on its decision this Wednesday.
With a 25 basis points (bps) Federal Reserve rate hike fully baked, investors remain hopeful that Chair Jerome Powell will maintain its hawkish rhetoric amidst tight labor market conditions. A slowdown in inflation from a peak of 9.1% is likely allowing the Federal Reserve to go for a smaller rate hike but it’s not yet enough for Powell to prematurely bring a halt to its rate hike cycle. Powell will also refrain from signaling any shift in the policy before the March economic projections and the ‘Dot Plot’ chart.
Gold price, therefore, could witness good two-way businesses, with the initial reaction to the rate decision likely to be reversed on Powell’s press conference. Volatility is set to remain at its peak, as the sentiment around Wall Street indices will also play a pivot role.
Tuesday turnaround for Wall Street
On Tuesday, Gold price extended its corrective decline, as the United States Dollar continued its recovery mode against its major peers. Investors resorted to repositioning ahead of the key US events, covering up their USD shorts. Although the tide turned against the US Dollar bulls as risk flows returned to American trading, rescuing Gold buyers. The end-of-the-month flows came into play and smashed the US Dollar recovery. The sell-off in the US Treasury bond yields added to the US Dollar pullback while aiding the rebound in the Gold price.
Gold price technical analysis: Daily chart
With a rising wedge breakdown in play, Gold bulls trade with caution heading into the all-important US Federal Reserve policy announcement.
The bright metal dropped sharply to the $1,900 threshold on Tuesday but staged a solid comeback thereafter. This suggests that Gold price remains a ‘buy the dips’ trade from a short-term technical perspective.
The 14-day Relative Strength Index (RSI) holds comfortably above the midline, cushioning the downside in the Gold price. The upcoming Fed event will provide a clear direction to the Gold price for the coming weeks.
On the upside, Gold buyers need to find acceptance above the $1,935 hurdle to negate the recent downbeat mood.
Further up, the move higher could challenge the $1,950 psychological level before attacking the $1,960 supply zone.
Alternatively, Gold sellers need a daily closing below the bullish 21-Daily Moving Average (DMA) at $1,907 to extend the correction from nine-month highs of $1,949.
The last line of defense for Gold buyers stands at the $1,900 level, below which floors will open up toward the January 11 low of $1,867.
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