Gold – Lost its shine?

How far will it fall?

The FOMC meeting was not kind to gold. With a taper now almost nailed on this year and rates potentially rising from next, it seems gold’s appeal is beginning to wane.

The yellow metal was already on a downward trajectory in the weeks leading up to the Fed meeting, with traders seemingly of the view that their determination to taper this year would not be derailed by weakening data and growing risks to the outlook.

And so turned out to be the case. Although as ever, there was plenty of room for manoeuvre, should the situation warrant it which means the central bank has given itself a little extra time.

As for what this means for gold’s immediate future, it’s not looking great. Of course, should certain situations unfold in a manner that could derail the taper – Covid, data, debt ceiling etc – that will change. But the Fed is currently assuming it won’t and therefore, so are the markets.

After rotating off $1,780 – prior major support and around the 61.8 fib on the 4-hour chart – gold finds itself falling quite hard and this week’s lows around $1,740 now look within reach once more. A move below here could see $1,700 back in focus.

One thing worth noting is how much is now priced in. A taper this year – most likely announced in November – a rate hike late next year and no major downside risks materialising. The only thing missing is higher inflation or a faster recovery through the winter, both of which could hasten the Fed’s tightening and accelerate gold’s decline.

But there is a long list of uncertainties going into the final months of the year. And with so much now priced in, just because the Fed is moving to a tightening path, it doesn’t mean gold is in freefall. The momentum indicators will be interesting to watch in the coming weeks.

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