Gold prices have fallen after hitting resistance at 3,438. This decline is influenced by trade deals and a lack of positive news. As the market waits for the Federal Open Market Committee (FOMC) decision, many expect the Federal Reserve to keep interest rates the same. However, if inflation figures improve, a rate cut in September could be possible. The upcoming Non-Farm Payroll (NFP) report may be crucial: weaker data might lead the Fed to consider cutting rates, while stronger data could keep the current policy. Long-term, gold may rise due to lower real yields as the Fed eases, but short-term adjustments in interest rates might cause some price corrections.

Gold Daily Chart Analysis

On the daily chart, gold has dropped below a key trendline, with sellers increasing. The important level to monitor is 3,120, where buyers may try to push prices back up towards the resistance at 3,438. In shorter timeframes, a downward trendline remains, with sellers targeting 3,246, and there’s little bullish energy ahead of the FOMC meeting. Notable upcoming reports include US Job Openings, Consumer Confidence, US GDP, and Employment data, which will impact market movements. Gold is pulling back from its recent high above $2,400, making this a key moment for traders. The absence of immediate positive news has led to short-term weakness, but the overall upward trend stays strong. This situation creates opportunities for strategies that can benefit from both anticipated volatility and the underlying trend.

Federal Open Market Committee Meeting Outlook

The upcoming FOMC meeting is highly anticipated, but we don’t expect any policy changes. According to the CME FedWatch Tool, there is over a 99% chance that rates will remain steady in June. The tone of Fed Chair Powell will be important; any suggestion of delaying rate cuts until late 2024 could lead to further declines in gold prices. We see the upcoming Non-Farm Payrolls report as the most significant event. The last report in early May showed a weaker labor market with only 175,000 jobs added, which was below expectations and initially supported gold. If this Friday’s report is unexpectedly strong, gold prices could drop towards the crucial support level around $2,280 per ounce. Inflation data is a key factor for the Federal Reserve’s decisions. The latest Personal Consumption Expenditures price index showed core inflation at 2.8% annually, still above the target. This ongoing inflation allows officials to remain cautious, limiting gold’s short-term upside and reinforcing bearish sentiment. For derivative traders, this situation suggests buying puts with a strike price near $2,280 to profit from a potential decline if strong economic data is reported. Alternatively, selling call spreads with an upper strike around the recent highs of $2,400 can generate income as long as momentum remains weak. This strategy allows traders to benefit from possible price drops or sideways movement in the upcoming weeks. Historically, gold tends to perform well during rate-cutting cycles, like in 2019 when it experienced a significant rally. We believe the long-term outlook for gold is still positive due to expected easing and declining real yields. Therefore, any notable dip could provide a chance to establish long-term positions, possibly using long-dated call options for leveraged exposure to a future rebound. In addition to U.S. monetary policy, strong demand from central banks also plays a role. The World Gold Council reported that central banks added a net 290 tonnes to their reserves in the first quarter of 2024, providing a strong foundation for the market. This structural buying should limit the extent of any corrections and provide confidence for buying during pullbacks. Create your live VT Markets account and start trading now.

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