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  • Gold prices have been in consolidation for some time, yet the Fed was unable to encourage a breakout.
  • Bulls will now hope for a deceleration of both USD’s recovery, COVID-19 spread and signs of inflation and lower real yields

The price of gold, XAU/USD, is trading at $1,944.13 at the time of writing having travelled some 0.8% to the downside from a high of $1,960.98 to a low of $1,932.88.

Investors pulled the bid in gold when the Federal Reserve disappointed on Wednesday when it decided to not add further stimulus to spur inflation nor support the economy.

Instead, the Fed left interest rates close to near zero, as expected and adjusted its forward guidance on rates to reflect the new monetary policy strategy of flexible average inflation targeting.

There were extended rate projection updates as well which detailed the target range for the federal funds rate at the zero bound through the end of 2023.

However, the main disappointment was the forward guidance on asset purchases was only limited to ‘coming months’.

On the dovish side, though, there was an outright shift towards quantitative easing.

The focus will shift away from monetary policy 

There will be now some time until the Fed meets again. The next time will be in more volatile conditions during the US ‘Election Week’.

This makes for a treacherous path for financial markets as it is a time that will also clash with the height of flu season.

While there are hopes of a vaccine, the clash between COVID-19 and regular flu could have devastating effects on consumers, social behaviours and jobs. 

With several headwinds converging in Q4, gold could be attractive as a safe haven investment. However, bulls need a catalyst. 

Staying bullish  

Analysts at TD Securities have been bullish on gold from the outset and argue the case for higher precious metals, in the absence of a spike in COVID-19.

We reiterate that the yellow-metal’s supportive positioning slate should keep prices from experiencing a more severe pullback.

As the world continues to recover from the pandemic, rising growth will further support inflation expectations and drag real rates lower, which will ultimately support gold and silver prices as investment capital continues to flow towards the complex. 

Gold levels

The US Dollar is a coin of two sides and can be argued to both benefit from economic improvements or lose value when there are signs of recovery.

In the Fed Chair’s Presser yesterday, for instance, the mention of a faster economic recovery, with unemployment falling more quickly than forecast in June, the US dollar rallied.

The currency, weighted against a basket of currencies in the DXY, is poised to run higher from a structure point of view, as illustrated in the following chart:

The market has corrected a reasonable portion of the recovery rally and should the price be supported in this area, the path of least resistance will be to the upside.

If the dollar somehow manages to run higher, then gold will most probably struggle in a dollar bullish environment. 

However, for the near term, there are prospects of a bullish retracement to test 1952 on the 4HR time frame’s structure so long as support holds:

However, the price is glued to the Point of Control in firm consolidation with no firm bias one way or the other.

Instead, there are either monthly downside targets or weekly upside targets:

Weekly chart

Monthly chart