Gold is stuck in a tight range, with the"buy the dip" mentality dominating the market. Investors are keenly watching the Federal Reserve's widely expected 25-basis-point rate hike next week. But if markets interpret the messaging as a"hawkish pause," gold's rally could re-start, according to analysts.
Gold's rally failed at an important level, which might mean there is still a deeper setback to come, Michael Boutros, senior technical strategist at Forex.com, told Kitco News. "From the Fed's standpoint, the devil is in the details. The 25 bps is heavily priced in," Boutros said."Commentary will be key. The big thing to look for is if the Fed will start to mention the banking system and issues like the First Republic Bank troubles."
Markets are still pricing in rate cuts later in the year, but the majority of analysts are having trouble reconciling the market's expectations versus the Fed's obligation to keep fighting the elevated inflation. "Gold positioning is at less than 50% of its peak, suggesting upside risk once the Fed signals the end of the current hiking cycle," said Suki Copper, precious metals analyst at Standard Chartered."We expect a hawkish pause."
From a technical perspective, gold's first major support is at $1,950-40, and then $1,925, said Lusk.