Gold price prediction: will Fed’s decision trigger a breakout?

By: Faith Maina
Faith Maina
Faith strives to break down complex developments so investors can make better informed decisions. When Faith is not immersed… read more.
on Sep 21, 2021
  • Gold price is on a rebound after entering the oversold territory earlier on Monday.
  • The metal has been trading between $1,740 and $1,835 since mid-June amid the mixed opinions on inflation.
  • Fed’s details on when and how the tapering will be executed may trigger a breakout past its months-long range

Gold price is back up above $1,750 after entering the oversold territory earlier on Monday. Investors now have their focus on Wednesday’s Fed interest rate decision.

gold price
gold price

Fed’s decision

Gold price will likely ease on its rebounding ahead of the Fed interest rate decision scheduled for Wednesday. As a precious metal, gold is viewed as a hedge against inflation. On the one hand, inflation concerns have rocked the market since the beginning of the year.

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In early June, the inflationary pressures boosted the precious metal back to January’s level at $1,915. At that level, it had surged by about 14.37% after declining to a nine-month low of $1676.15 in early March.

However, the Federal Reserve has maintained that the inflationary pressures are transitory. On the one hand, the recent CPI numbers are in line with the bank’s narrative. On a month-on-month basis, consumer prices rose by 0.3% in August compared to the prior month. Besides, the prices surged by 5.3% on an annualized rate, which is lower than the prior 5.4%.

While the Fed has maintained a cautious stance, some analysts and investors are of the opinion that inflation will extend into the coming year. Gold price movements since mid-June are a reflection of the mixed opinions over the matter. During this timeframe, it has been trading between $1,740 and $1,835.

The Fed has insisted that tapering its asset purchases by end of the year should not be viewed as a precursor for rate hikes. Nonetheless, detailing when and how the tapering will be executed will likely avail cues on the direction of its monetary policy. A dovish tone will exert pressure on the US dollar while boosting precious metals.

Gold price technical outlook

Gold price is on a rebound after its decline earlier on Monday. After dropping from an intraday high of 1,755.66, it entered the oversold territory with an RSI of 27. However, it has since gotten out of that zone at its current RSI of 53.

At the time of writing, the precious metal was up by 0.57% at 1,765.01. Since mid-last week, it has been trading below the support-turn-resistance level of 1,800. On a two-hour chart, it is trading between the 25 and 50-day exponential moving averages.

In the near term, gold price will likely continue finding support along the 25-day EMA at 1,761.39. Subsequently, it may trade within a tight range ahead of the Fed interest rate decision. If that happens, the horizontal channel’s upper and lower borders will be along the 25-day EMA at 1,761.39 and 50-day EMA at 1,769.28 respectively.

Further rebounding will place the resistance level at 1,780. At the same time, a pullback to the support level at 1,750 cannot be dismissed.

gold price
gold price

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