Gold prices have rebounded sharply, and they are on track to finish the week on a positive note with only one day left. The question that traders are asking themselves is if the gold prices can really soar further in light of what the Fed said yesterday and what the market has taken from their meeting.
The Fed's Rate Decision Impacts the Gold Price.
Yesterday, the Fed left rates unchanged, and the door is wide open for them to begin the process of cutting the rate for the first time since 2020. Despite the Fed's balanced comments, market players largely ignored them, interpreting the Fed meeting as a signal that the rate will be cut more than once this year. Speculators are highly optimistic that the Fed may lower interest rates three times this year. Smart money believes that the Fed's speech was somewhat dovish, and it's clear that pressure is mounting on the Fed to initiate rate cuts as economic data continues to support the slowdown in economic growth and the decline in the job market, a crucial component of the Fed's mandate. We are certainly going to get a lot more information on this tomorrow when the US NFP data will be released, but nonetheless, smart money thinks that speculators are once again ahead of themselves, as there was nothing so dovish in their speech, which would indicate that there could be three rate cuts taking place this year from the Fed.
Clearing the Noise
Traders and investors must keep one thing in mind: when the Fed refers to data or says that they are data dependent, they really don’t mean what the market really thinks. What I'm trying to convey is that the Fed heavily relies on data trends rather than a single data point. Typically, when the market receives a significant data print, either positive or negative, speculators tend to believe that the policy has changed and a U-turn is imminent. However, the reality is different, as the Fed President makes it clear that it is not the data point that they look at but the data trend. Therefore, it is crucial for gold traders to pay attention to this factor. When they examine the US NFP data tomorrow, they should filter out the noise by focusing not on the headline number but on the actual trend and its development, and then make their decision based on these facts.
Is the gold price too high again?
It was only last week that we saw two consecutive weeks of losses, and the conversations were taking place about how the gold price was way over its limit and a correction was pending, and it is here now. However, this week, that has changed again, as the prices have not only found massive buy orders, but they are very close enough to close all the selloff that has happened for the past two weeks, which is very bullish for the gold price.
How far the gold price will go
The daily time frame clearly shows that the gold price is once again in an uptrend, with the 50-day SMA, highlighted in orange in the chart below, providing significant support. The gold price is also trading above the 50-day SMA, which tells us that the bulls are very much in control of the price, and the MCAD indicator, which is widely considered a tool to measure the strength of the current trend, also indicates that it is bulls who are in control of the price. The red line indicates the next significant resistance, and if the current momentum persists, the US NFP data could propel us to that level tomorrow. However, if the data fails to impress, we could certainly see the price moving towards the 2354 price level mark, represented by the green horizontal support line.
Gold price chart by Exness