- Market participants hope China’s government might soothe the problem by giving the real estate giant a deadline extension.
- On Tuesday, the gold price forecast remained bullish above the 1,745 support level, which is the double bottom level.
- Forex trading market participants may buy above the $1,770 level to target the $1,776 and $1,785 levels.
Gold prices were closed at $1758.40 after reaching a high of $1782.70 and a low of $1758.40. Gold prices extended their gains and settled higher for the second straight session amid the risk-off market sentiment driven by China Evergrande’s debt crisis and the cautious behavior of investors ahead of the guidance on tapering asset purchases and interest rate hikes from the Fed. On Wednesday, the gold price forecast remained bullish above the 1,770 support level, the 38.2% Fibonacci retracement mark.
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The US Dollar Index (DXY), which measures the greenback’s value against the basket of six major currencies, fell on Tuesday and reached 93.05, which further weighed on the greenback. It further supported the rising price of the yellow metal. The greenback remained under pressure on Tuesday despite a better than expected macroeconomic data release for the day, as the safe-haven appeal of gold remained higher amid the Evergrande debt crisis in China.
The Evergrande Issue Continues to Underpin Gold Prices
Gold is expected to continue to find safe-haven buyers depending on how the situation around Evergrande plays out in the market. Market participants hope China’s government might soothe the problem by giving the real estate giant a deadline extension. If this happens, the increased interest of investors in bullion would quickly evaporate as it appeared in the market.
Evergrande is a Chinese real estate giant with over $300 billion in liabilities, making it the most indebted real estate company globally. The company has announced that it might not be able to repay the payment of its debts due this month due to a significant continuing decline in contract sales in the month, which has affected its cash flow and liquidity position in the market.
If the real estate giant collapses, it will have a massive impact on industries worldwide. It will directly reduce Chinese demand for international products, commodities, and services. Therefore, it affects markets everywhere since China is a significant trading partner for over 100 countries worldwide.
The situation surrounding Evergrande prompted investors to shock the stock markets around the world, and they started buying safe-haven assets, including a yellow metal that rose towards the $1782 level.
Meanwhile, the US dollar also came under pressure on Tuesday despite stronger data reports amid the cautious behavior of investors ahead of the Fed’s decision over tapering economic stimulus.
The Fed is expected to announce its monetary policy meeting decision from September’s meeting on Wednesday, and a day ahead of this decision, investors were cautious about placing strong bids, which kept the greenback under pressure for the day, which added strength to the yellow metal prices.
A Quick Economic Data Outlook
On the data front, at 17:30 GMT, August Building Permits increased to 1.73M, exceeding the forecasted 1.60M, supporting the US dollar and extending gold price gains. The Current Account from June showed a balance of -190B against the anticipated -193B and kept the US dollar and limited the rising price of gold. The increase in housing starts in August to 1.62 million from an estimated 1.55 million boosted the US dollar, limiting further rises in gold prices.
What to expect from the FOMC Meeting?
It’s finally here, after months and months of conjecture. The FOMC is meeting for two days, and it is widely expected that they will reveal soon that they will begin cutting down their asset purchases.
What does all the excitement around the event entail for traders? What’s going to happen in the markets? Let’s find out…
This is a difficult topic to answer because the Fed has many possibilities. In fact, the more specific the questions, the shakier the consensus becomes.
If the question is, “Are we going to see anything from the Fed?” then the answer is yes. Yes! says the overwhelming majority of analysts and economists.
On the other hand, if you ask, “What exactly will the Fed do in terms of when the taper will begin, and how much will they taper?” The responses will then be all over the place. As a result, the markets may experience increased volatility.
In most cases, the Fed will notify the markets at least two months ahead of time to begin to taper its asset purchases. That means we’ll see the taper in November if they announce it tomorrow.
The Fed may alternatively provide a different timetable, or they may choose not to mention one at all. They can only state it will happen “soon” or “in the next months,” for example.
How much to taper?
Then there’s how much to taper, and it’s becoming a more critical component in the markets. The Fed is currently buying $120 billion in assets per month, with $80 billion in treasuries and $40 billion in mortgage-backed securities (MBS).
The Fed could sway markets by hinting at how much they will taper. However, it is widely assumed that the Fed will defer action on this until a later meeting. In any case, it appears that the Fed will begin tapering by $15 billion per month, including $10 billion in Treasury bonds and $5 billion in MBS.
Gold Price Forecast – Daily Support and Resistance
Support Resistance
1761.66 1785.96
1747.88 1796.48
1737.36 1810.26
Pivot Point: 1772.18
Gold Price Forecast – Focus on Evergrande & FOMC
On Wednesday, the gold price forecast remained bullish above the 1,770 support level, the 38.2% Fibonacci retracement mark. The closing of candles above the pivot point support level of 1772.18 provides a significant bullish bias for gold.
The overbought gold has already completed a 50% Fibonacci retracement at $1,776 level and consolidating right below this. On the bullish side, a breakout above the 1,776 level can trigger a buying trend until a 61.8% Fibonacci retracement level is 1,785. Further above this, the next support level prevails around 1,797 level.
On the bearish side, the immediate support prevails at the 1,770 level. Whereas, a breakout below this opens further room for selling until 1,766 level. In the 4- hour timeframe, the 50-day EMA may provide support at the 1,766 level. Furthermore, the leading indicator, Stochastic RSI, remains above 50, indicating a robust gold-buying trend. Therefore, Forex trading market participants may buy above the $1,770 level to target the $1,776 and $1,785 levels. Alternatively, traders can take a sell position below $1,770 level today. All the best!
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