Gold prices are volatile today as traders are much paying attention to economic data and trying to make sense of what the Fed will make out of this. Yesterday, the Fed chairman surprised market players with his words when he said that the market players should not expect an interest rate cut of 50 basis points in future meetings. Gold traders have enjoyed the rally in gold prices on the back of the weakness in the dollar index, and if we begin to see an improvement in the dollar index’s price, we could see a totally different reaction among traders, which could translate into a new trend that bulls may not like.
Fed’s Comments
The Fed Chairman, Jerome Powell, delivered some surprising comments yesterday by saying that market players are not gauging the reaction of the Fed properly. He really referred to the expectations of another jumbo interest rate cut by the Fed during their next meeting. His comments took gold traders by surprise, as many have been of the mind frame that the Fed is desperate to cut the interest rates and they will be lowering the interest rates as quickly as they increase them.
However, the fact of the matter is that market players have been getting ahead of themselves, and the result of that can be seen by looking at the price action of the yellow metal, as it has moved very much in one direction and one direction alone.
This sudden shift in sentiment from Powell has caused a ripple effect in the market, with investors now reassessing their expectations for future rate cuts. The uncertainty surrounding the Fed's next move has injected a new level of volatility into the gold market, leaving traders on edge. The once clear-cut path for gold prices has now become muddled, with conflicting signals creating a challenging environment for traders to navigate. As a result, the market is now bracing for a period of heightened volatility as investors wait to see how the Fed's next move will impact the price of gold.
ISM Numbers
Speaking of the challenging environment and muddled outlook for the gold price, one thing that the Fed Chairman did make very clear was the fact that any action by the Fed will be highly dependent on the economic data. And today, we have seen more weakness in the economic numbers. For instance, US ISM Manufacturing numbers failed to print a number that was better than the expectations: actual 47.2 vs. the forecast of 47.6 while the previous reading was at 47.2. The fact that we have not seen any improvement in the US ISM manufacturing number is not really good news for the US economy, and this means that bad news could be good news for gold traders.
This could potentially signal that the Fed may be more inclined to cut interest rates in order to stimulate the economy. Additionally, the ongoing trade tensions between the US and China continue to weigh on market sentiment, further adding to the uncertainty in the global economy. As a result, investors may turn to safe-haven assets like gold as a hedge against market volatility.
In terms of technical price analysis, gold appears to be forming a strong support level around $2,625 per ounce. The price on the four hour time frame kissed the 50-day SMA, simply moving average, which is an encouraging sign for many traders. The fact that the price only violated the SMA for a brief moment and moved back up quickly shows the fact that traders are very much convinced that the Fed will have to do another jump cut, and they are expecting another big interest rate cut from the Fed.
Gold chart by XTB
