Is Gold Likely To Rally Further? FOMC Indecisive, BOJ In Focus

Precious metals prices gained support on Wednesday (27/7), after the U.S Fed held interest rates unchanged, despite painting a rosier economic picture than it did just a month ago.

The Federal Open Market Committee decided to keep its overnight interest rate target in the 0.25% to 0.5% range. This is the fifth consecutive meeting in which the FOMC has left rates unchanged in light of global economic concerns. Additionally, the afternoon FOMC statement barely contained any hints on the timing of a tightening in monetary policy, and arguably favored the doves. As a result, traders and investors flocked into the safe-haven, including gold due to no clear definition of the path to higher rates.

Moreover, gold prices received a slight boost when a much-weaker-than-expected U.S. durable goods orders report was released by the Commerce Department. Overall orders for durable goods – items ranging from toasters to aircraft that are meant to last three years or more, decreased by 4% in June. This represented the largest decline since August 2014, after a downward revision to -2.8% for May. Weak demand for machinery and a range of other durable goods suggested business spending would remain subdued for a while.

Investors seem to be cautious ahead of Friday’s Bank of Japan meeting, which will decide whether there would be a more aggressive fiscal and monetary stimulus or not, following the recent election victory by Prime Minister Shinzo Abe’s Liberal Democratic Party. On Wednesday (27/7), Shinzo Abe surprised the market after unveiling a large $265 billion stimulus package. The shocking announcement has created great pressure on the central bank to move towards an aggressively expansionist policy. It has also rekindled the “helicopter money” option – giving cash directly to businesses and consumers – back on the table.

The dollar index .DXY, which tracks the USD against a basket of six major rivals, slipped 0.7% to a two-week low of 96.343.


Fig. GOLD D1 Technical Chart

On the hourly chart, the commodity is following an uptrend and currently trading at 1342.11. RSI (14) hovers around 57.5980, showing that the bull is still stronger than the bear. The moving average is staying beneath the price action, thus consolidating the bull’s dominance. The trend indicator is encouraging long positions with the green SAR  band lying below. The level 0.0% of Fibonacci retracement is anticipated to be tested.

Trade suggestion

Buy Digital Call Option from 1343.75 to 1352.40 valid until 20:00 July 29, 2016

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