Gold prices drop following FOMC event

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The focus was on the Federal Open Market Committee (FOMC) yesterday where it raised its key rate by 0.75% for the fourth consecutive time. It was as expected and meant it’s now in the 3.75-4% range.

The initial reaction was negative for the US dollar as financial markets were fixated on the change in its statement to "take into account...the lags with which monetary policy affects economic activity and inflation".

But afterwards, it got hawkish with the central bank’s Chairman Powell during the press conference saying "the ultimate level of interest rates will be higher than previously expected" adding they "still have some ways to go" with a preference to preventing inflation becoming entrenched over risks of overtightening, and in the end pushing the greenback higher and sending risk appetites into retreat.

Bond market yields were in for a climb across the board undoing drops earlier in the session and taking real yields higher with it, and an added negative for the non-yielding precious metal’s price against a stronger greenback.

As for market pricing for future rate hikes out of the Federal Reserve, it's majority on 50bp (basis points) for its December meet (no longer 50/50 between 50bp and 75bp), and majority next year on rising into the 5-5.25% range.

In terms of US economic data, there were a couple of items: weekly mortgage applications out of MBA down 0.5% in another piece of data showing the US housing sector tested, and on the labour front ADP's non-farm estimate enjoying an increase of 239K for October larger than 193K expectations.

Services, trade, and unemployment claims are on offer next before tomorrow's Non-Farm Payrolls where expectations are for a roughly 200K reading, and the unemployment rate to rise a notch to 3.6%.

Gold Technical analysis, overview, strategies, and levels

The intraday high was just shy of its previous 1st Resistance level's S/L (stop loss), conformist sell-after-significant-reversals enjoying the most gains with less on offer for contrarian buy-breakouts, and the lows shy of its previous 1st Support failing to trigger a play there.

From a technical standpoint, prices have fallen beneath the last of its main moving averages, its remaining key technical indicators neutral, and a positive DMI (Directional Movement Index) cross occurring but where that holds less significance given the close +DI to -DI proximity causing false signals that haven’t yielded follow-through as of late.

And although we’ve been dealing with larger channels and ranges at times, the technical overview for both daily and weekly time frames remains bear average.

IG client* and CoT** sentiment for gold

In sentiment, retail trader bias is still extreme to the buy side and has risen a notch following yesterday’s price drop to 85%. It also rose slightly in silver to 91% and is unchanged for platinum at 86%.

CoT speculator bias for gold is also majority buy but at more moderate levels at 60% as of last week, CoT silver sentiment in the middle (50/50 long/short on positioning), platinum majority buy 63%, while palladium majority short 67%.

Gold chart with retail and institutional sentiment

*The percentage of IG client accounts with positions in this market that are currently long or short. Calculated to the nearest 1%, as of today morning 8am for the outer circle. Inner circle is from the previous trading day.
**CoT sentiment taken from the CFTC’s Commitment of Traders report, outer circle is latest report released on Friday with the positions as of last Tuesday, inner circle from the report prior.