Gold Price Forecast: Gold Bears Push Break Ahead of the Fed

Gold Price Forecast:

• The bigger picture bullish trend appears to remain on hold, and Gold markets are brewing with some bearish potential as shown by a descending triangle formation on the weekly chart.
• That Gold up-trend has been on hold since last August, when rates bottomed in the US and as Treasury rates have continued to climb, Gold prices have been on their back foot. Will the Fed be hawkish enough next week to elicit a larger bearish response from Gold prices?
• The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

Over the past year we’ve heard about rapidly escalating inflation and despite the fact that the Fed has continued to say that it’s ‘transitory,’ inflation growth has yet to abate. And in some areas, it appears to be getting more worrisome as we’ve even started to hear corporates warning and lowering guidance due to supply chain constraints. Snapchat, a company that sells virtually zero physical product themselves, warned in last week’s earnings call that advertisers are less active because they simply have less product to sell, a pretty clear sign that inflation is perhaps less ‘transitory’ than the Fed had initially hoped.

This is highly pertinent in Gold, which can perform very well in a stagflation-like environment. Expectations for such can build when you have strong inflation and meager growth, similar to what was indicated by this week’s Advance GDP read showing a 2% annualized growth rate. But we’re not there yet and we may not get there, it really depends on how the Fed handles this rather difficult situation that’s begun to build, and we’ll hear more about that next week.

In Gold, the fear is rate hikes. Rate hikes can draw capital away from non-interest bearing assets such as Gold or Silver. The more hawkish the Fed is, the more bearish Gold can become; but it’s often a game of anticipation as one could see by analyzing Gold charts from 2012-2015, a period in which the Fed was readying markets for the eventual return of higher rates. The Fed hiked for the first time in nine years in December of 2015, and perhaps not coincidentally, this is when Gold bottomed, highlighting the importance of anticipation around rates themes when analyzing Gold markets.

With that in mind, it makes sense as to why Gold topped in August of last year, right around the time that US rates bottomed. And as rates markets have continued to price-in the prospect of eventual rate hikes, Gold prices have been biased to the downside. From the weekly chart below, we can even see the build of a bearish formation with the descending triangle. This is illustrated with a show of horizontal support to go with lower-high resistance, highlighting the potential for a bearish break at some point in the future.

To learn more about the descending triangle, check out DailyFX Education

Gold Weekly Price Chart

Chart prepared…