- SWFX traders are waiting for more Fed signals, sentiment is steady (59% bullish)
- Dovish Fed could push gold to monthly PP (1,086); hawkish Fed forecasters to look at 1,044 (2010 low)
- Daily technicals are unsure, in which direction the metal will develop on Wednesday
- Economic events to watch in the next 24 hours: FOMC Interest Rate Decision, Economic Projections, Monetary Policy Statement in Press Conference; French, German, Euro zone and US Manufacturing PMI (Dec); Euro zone Trade Balance (Oct) and CPI (Nov); US Housing Starts (Nov), Building Permits (Nov) and Industrial Production (Nov); UK Claimant Count Change (Nov) and Unemployment Rate (3M-Oct); Swiss ZEW Expectations (Dec); SNB Quarterly Bulletin (Q4); Japanese Trade Balance (Nov)
Gold climbed on Wednesday ahead of the long-anticipated Fed's decision later in the day, when the central bank is widely expected to hike interest rates by 25 basis points for the first time in nine years. Higher rates would dent demand for non-interest-paying bullion, while supporting the US Dollar. A number of market participants believe a rate hike is already priced into gold, and any comments from the Fed that further rate hikes would be slow and gradual could push the precious metal higher. Meanwhile, assets in the top gold ETF, SPDR Gold Trust, remains at the lowest level since September 2008.
All eyes are now on long-anticipated Fed's decision later in the day, with increasing chances (81.4% of probability) of a rate hike, the first in nine years. Meanwhile, investors have to answer a number of questions such as "Where to invest when the Fed raises rates? How the Fed could challenge markets? What will be the pace of rate hikes moving on forward? Will the US and global economy withstand policy normalisation?", and many more. Yet, the main question remains ‘Will the Fed eventually hike interest rates today?' Meanwhile, US data continues to point to a strong impetus in the world's number one economy. US underlying inflationary pressures rose in November even as renewed decline in gasoline prices kept overall consumer prices in check, providing the Fed with more ammunition to hike rates later in the day. According to the Labor Department, the core consumer price index, which strips out food and energy, climbed 0.2% in the reported month. In annual terms, the core CPI rose 2.0%, the biggest gain since May 2014, after edging higher 1.9% in October. The overall CPI remained unchanged last month following a 0.2% increase in October. In the 12 months through November, consumer prices increased 0.5%, the largest gain since last December, after rising 0.2% in October. The Fed targets 2% inflation.
British inflation rebounded slightly in November after being in negative territory for two months in a row. Nevertheless, growth in consumer prices remained near zero for 10 consecutive months, giving the Bank of England ample scope to decide when to hike interest rates even if the Fed takes action this week. According to the Office for National Statistics, annual consumer price inflation climbed 0.1% last month from October's reading of –0.1%, aided by smaller-than-expected falls in the prices of alcoholic drinks, tobacco and transport. The UK inflation has stuck in a narrow range between –0.1% and +0.1% since February, mainly due to a decline in oil prices. However, robust growth in Britain's economy means the central bank have been less concerned about persistent deflation than their European colleagues. Core inflation, which strips out volatile components such as energy, food, alcohol and tobacco, climbed 1.2% from 1.1% in October. Last month the BoE predicted inflation to stay below 1% for the first half of next year. A separate report showed house price inflation in October increased 7.0%, compared with 6.1% in September and marking the fastest price growth since March. Prices in London alone surged by 7.7%.
Upcoming fundamentals: Fed rate decision to overshadow other data on Wednesday
The Federal Open Market Committee is widely estimated to raise the Fed Funds rate by 25 basis points at 19:00 GMT on Wednesday. The probability assigned to the event amounts to about 80% for the moment. However, future rate increases will be gradual, according to the majority of market analysts. VantageFX experts say that "futures contracts have priced in a whopping 78% likelihood that Yellen and friends in the Federal Reserve (Fed) will raise their short term interest rate from near zero levels to 0.25%, while also pricing in a further two [hikes] during 2016 to take the Fed Funds Effective Rate to 0.75% this time next year." Separately, Deutsche Bank analysts suggest that "importantly, we expect the FOMC language to reinforce policymakers' desire to raise interest rates at a "gradual" pace, economic and financial conditions permitting." Meanwhile, stock markets across Asia rocketed on Wednesday, which reinforces the case of a more dovish FOMC meeting outcome than it can be anticipated.
Gold appreciates as all eyes are on the Fed
The bullion traded with no daily change on Tuesday, even though attempts were made to surge in the direction of 1,070. Wednesday morning, however, we are seeing a more pronounced bullish action. Market volatility is expected to be uplifted throughout the next 24 hours, also because traders are curious about the Fed decision and, most importantly, the future pace of hikes. Even a slightly dovish outcome for the second point could result in positive trading for gold, possibly up to the 1,086 mark (monthly PP). A hawkish result should prepare the metal for a sell-off down to the 1,044 target (2010 low).Daily chart
In the one-hour chart, gold has a good chance of recovering in the nearest future. This scenario will become a reality, in case the Fed disappoints markets by being more dovish in its policy statement. The first bullish target is located at 1,071 (200-hour SMA, trend-line), while the next one extends up to 1,079 (Dec 4-9 trend-line).
Hourly chart
SWFX positions unchanged during the Fed Day
Meantime, both OANDA and SAXO Bank market sentiment is also stable with respect to the precious metal. OANDA clients are long on gold in 71.47% of all cases. At the same time, SAXO Bank long open positions are keeping the share of 68.45% on December 16.