Market analysis: Gold price increase following ‘dovish’ FOMC tests technicals

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The US Federal Reserve hiked rates by 75 basis points (bp) as expected, taking its key rate to 2.25-2.5%, with its Chairman Powell coming off as a bit more dovish and data-dependent. That meant market pricing of September's interest rate hike is a majority for a 50bp increase instead of a previous coin toss between it and 75bp.

A lot can happen between now and then, but if we're at a place that's largely in line with the central bank's neutral rate and it's expected to be more restrictive moving forward, all of it depends as always on whether peak inflation has passed or whether we're in for further shocks or a sticky descent back down.

US economic data showed another contraction for mortgage applications, durables besting estimates but its core failing to rise when adjusted for inflation, its trade deficit narrowing to $98.2bn, pending home sales contracting 8.6% m/m (month-on-month) for June, and preliminary wholesale inventories up 1.9%. We’ll get advance GDP (Gross Domestic Product) tonight to see if we’re technically in a recession should it register a negative reading for the second quarter, and pricing data tomorrow.

Gold Technical analysis, overview, strategies, and levels

Gold prices enjoyed a decent session taking prices beyond its previous 1st Resistance level's S/L (stop loss) aiding contrarian buy-breakouts as conformist sell-on-reversals failed. While already causing the at-risk technical indicators to move with a more conflicted picture, less so when it comes to silver even as it outperformed sizably taking the gold/silver ratio away from its roughly 93.54 short-term resistance level into the lower 90 handles and not far off a short-term support level.

IG client* and CoT** sentiment for gold

There's hardly a change in sentiment with retail traders down a notch at extreme buy 87%, silver retail trader bias unchanged at a higher 93%, and platinum at 86%.

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.