Gold held steady on Friday as traders await next week's FOMC meeting for gold's next move. Although the chance of a rate hike at the July FOMC meeting has been reported to be very low, that is not completely accurate according to the CME's FedWatch tool. Based on the beliefs of polled interest rate futures traders, there is more than a slight chance of a rate hike next week. According to those traders from which the FedWatch tool derives its odds, there is a 37.9% probability of an interest rate hike at the July 29th meeting. That is about a threefold increase from one week ago, at which point the odds for a rate hike were forecasted to be only 12.8%.
If we did get a rate hike next week, it would certainly catch many traders off guard who aren't expecting a hike until the September meeting. This would undoubtedly send gold and silver sharply lower, as unlike a September rate increase it has not been priced into the markets. A hike at the September FOMC meeting has already been priced in the markets as it was the main reason for gold's 24% decline over the past 143 days (since conflict with Iran).
Gold ended the day flat, gaining just under $4 or 0.10% in spot markets to close at $4,052. Prices were buoyed by a fall in oil prices and did not have headwinds from the US dollar both of which had been weighing on gold all week. Despite the 10.64% increase in WTI crude and 0.71% increase in the US dollar index, gold still managed to gain $34.16 or 0.85% this week. It also managed to hold onto support at around $4,000 despite making another lower high. This makes seven consecutive lower highs for the precious metal since hitting an all-time high on January 29th. Despite this, gold has not made a lower low for a full month's time which has some analysts seeing the current support level one that the bulls can effectively defend.
The technical picture entering next week is one of fragile equilibrium. Gold cannot make a lower low — a sign of genuine buyer conviction at $4,000 — yet it continues to register lower highs, now seven in a row since January's record. That standoff is unlikely to endure, and the July 29th FOMC decision is the most likely catalyst to break it. A Fed hold, still the base case, may provide only modest relief as oil's double-digit weekly surge and a firmer dollar will continue to cap any rally. A surprise hike, however, could be the trigger that finally cracks $4,000 — a development that would catch the majority of market participants flat-footed. For gold to mount a durable recovery, traders will need confirmation that the rate cycle has peaked and that cuts are the next move on the Fed's agenda. With FedWatch now placing July hike odds at nearly 38% — nearly triple last week's reading — that confirmation remains elusive. Subscribers would do well to keep a close eye on any further shift in futures pricing heading into the weekend.
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Wishing you, as always, good trading.
