Gold is under pressure to start the new week, and this time the technical picture is beginning to look rather uncomfortable.
Prices have slipped back below $4,300 as traders position ahead of the Fed decision, with a stronger dollar and elevated Treasury yields continuing to weigh on bullion. The dollar has risen to a two-week high, while markets are now pricing close to a 90% chance of a 25 bps rate hike by the Fed this week.
While the fundamental backdrop is relatively straightforward, the more interesting story today for gold is arguably on the charts.
The precious metal is now threatening to break through a cluster of technical support levels that have been holding the downside together.
The first being the 100-day moving average (red line) at around $4,331, followed almost immediately by the 50.0 Fib retracement level of the swing higher from July to August at around $4,328.
Those two levels are effectively layered on top of each other, so losing them already weakens the technical setup considerably for gold.
But the bigger line in the sand is arguably the one just underneath all of that.
The price action since August has also carved out what looks like a head-and-shoulders formation, with the neckline sitting roughly around the $4,290 to $4,310 region. A sustained break below that zone would give the current decline a more meaningful technical signal rather than simply another dip within the broader range.
That would bring the 61.8 Fib retracement level near $4,241 into view next, but one can argue that the the technical momentum from such a break could lead to a drop near $4,000 next.
That being said, timing matters. For now, the $4,290 to $4,310 region is the line to watch. A sustained break would turn what has so far been a controlled pullback into a more meaningful technical deterioration.
The caveat is Fed decision on Wednesday. With markets pricing close to a 90% chance of a 25 bps rate hike, gold’s next move will depend heavily on whether the Fed validates those expectations or delivers a surprise in its guidance.
This article was written by Justin Low at investinglive.com.