- Last week, Gold prices took a severe hit and there has been only a slight recovery a week later.
- The short-term Gold price ranges are bound, and considering the drivers behind the trend, as well as the fact that they might not be in the spotlight until the summer, there is a high potential for Gold to range.
Gold prices saw heavy repricing last week as buyers bought after the Fed released their updated forecasts. Although the Fed's forecasts changes may appear subtle, the market reacted strongly to them. There was a clear signal being sent by the FOMC. This signal means that the loose money policies used to boost the economy's performance on Covid won't last forever. As inflation has risen, it is possible that the end of this accommodation will come sooner than expected.
The Fed highlighted two potential rate increases in 2023. Not next year, but the year after. In quick order, the US dollar surged while most major FX pairs reversed. The gold prices did not suffer as buyers quickly abandoned bullish setups, and prices plummeted to 1761. They had traded at 1900 the Friday before FOMC.
This is a move of 7.46% from Friday's high to last week’s low. At that point, a confluent zone Fibonacci support began to emerge that has, so far, been able to limit the lows. These plots range from 1763.11 to 1766.28. After holding the low last week, prices showed a slight bounce and have held that level throughout the week.
GOLD BOUNCE CUT SO FAR
Normaly, after a move this large, support will play in and there is a stronger pullback. For example, the US Dollar showed a visible pullback within the first few days. Gold has seen sellers remain active, while driving-in resistance at the 1800 handle. The corresponding bounce from support? The US Dollar has retraced slightly more than 23.6% from its June move.
Highlight is the fact the pullback of the Gold sell-off was a little lighter than that in the USD surge. This indicates that investors may be anticipating a more hawkish Fed in the near future, even though it's not an immediate concern.
Setting the stage for a longer-term backdrop will result in a shorter-term setup. This longer-term backdrop requires patience and waiting. The Fed has already presented their projections and said their piece. We won't be seeing another quarterly meeting until September. We'll also be attending the Jackson Hole Economic Symposium, which many expect to hear the next major announcement from the FOMC on taper and their plans.
This means there are still a few months to go. After breaking-above the bull flag during May, gold had held a bullish backdrop. However, with the Fed's last week's reverse, it appears that the FOMC is now preparing for bearish tendencies.
These items are still a few months away.
After last week's big move, gold prices are now in a minor range. It is very tight and may not last for long. However, there have been some inflections on each side of resistance and support at this point. This can be used to keep the backdrop open for range continuation items.
Fibonacci Retracement, which was produced by the major move and spanning the April 29 low to the June 1 high, is used to guide that range. Range support is located at 1774.24, which is the 88.6% retracement from that major move. Resistance is at 1793.83, where is the 76.4%. This dynamic is highlighted in the hourly chart below. Those with bullish or bearish biases can look for trends to develop and approach the range with a trend side bias.