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  • Gold was seen oscillating in a narrow trading band through the first half of the European session.
  • Expectations for less dovish Fed – amid rising inflationary pressure – so far, has capped the upside.
  • A subdued USD demand, a downtick in the US bond yields, softer risk tone extended some support.
  • Gold Weekly Forecast: XAU/USD tests key trend line ahead of FOMC meeting

Gold lacked any firm directional bias and remained confined in a narrow trading band through the first half of the European session on Wednesday. Investors now seemed reluctant to place any aggressive bets, rather preferred to wait on the sidelines ahead of the highly-anticipated FOMC monetary policy decision. Investors might have started pricing in the prospects for an earlier stimulus withdrawal amid worries about rising inflationary pressure. This, in turn, was seen as a key factor that capped the upside for the non-yielding yellow metal.

That said, a combination of factors acted as a tailwind for gold and helped limit any losses, at least for the time being. Nervousness ahead of the key event risk was evident from a modest pullback in the equity markets. The prevalent cautious mood was seen as a key factor that extended some support to traditional safe-haven assets, including gold. Adding to this, a subdued US dollar demand – amid a modest downtick in the US Treasury bond yields – further held traders from placing fresh bearish bets around the dollar-denominated commodity.

Nevertheless, the key focus will remain on the latest monetary policy update by the Fed, due later during the US session. Investors will be closely watching for clues about a possible change in the policy outlook and if members have already started the discussion to taper monthly bond purchases. Apart from this, fresh economic projections and Fed Chair Jerome Powell’s tone at the post-meeting press conference will play a key role in influencing the near-term USD price dynamics. This would eventually help investors to determine the next leg of a directional move for gold.

Gold technical outlook

Looking at the technical picture, the recent break below a short-term ascending trend-line – extending from YTD lows – might have shifted the bias in favour of bearish traders. However, the emergence of some dip-buying ahead of the very important 200-day SMA support warrants some caution. Hence, it will be prudent to wait for some strong follow-through selling below the $1,845-40 area, or monthly swing lows before positioning for any further near-term depreciating move.