Gold – Fed holds the key

Ranges may hold until the meeting next week

Gold has been struggling for direction for a couple of weeks now, which is surprising as it’s one of the few instruments that hasn’t seen significant volatility since the Omicron announcement.

That may be because the outcome isn’t clear if the new variant does turn out to be as worrying as first feared. Central banks are in no position to just turn the taps on as they have in the past, they may even have no choice but to tighten monetary policy regardless or risk extreme levels of inflation that far exceeds their mandates.

At best, they may slow the pace of tightening and try and buy a few months in the hope that inflationary pressures show signs of easing, as they still expect. But even this would come with risks given how wrong they’ve been so far this year.

So where will gold move in the interim? The Fed next week may hold the key to that. Although there are a number of central bank meetings around the same time including the ECB and BoE so we should have a much better idea of how Omicron affects monetary policy soon enough.

In terms of technical levels, the yellow metal is currently stuck between resistance at $1,810 and support at $1,760. The lower end of this looks more vulnerable currently although overall, neither looks at massive risk. If one of these breaks, we could see momentum pick up quite quickly.

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