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WEEK AHEAD: MARCH 15

Short Description

Gold has had a tough year so far and just fell into a bear market. But is now time to pick up a shiny bargain with a lower gold price? I also discuss the Fed meeting and rundown the economic calendar. Thanks! Rich

Video Script

How will gold react to the FOMC meeting? - THE WEEK AHEAD (Mar 15-19, 2021)

 

Hi everyone, in my preparation for this week’s trading I’m taking a look at gold, which after a banner year in 2020 fell into a bear market last week. Is it time to buy the dip or will the bear market be here for a while? I’ll also preview this week’s Federal Reserve meeting, while running through the economic calendar.

 

You’ll remember I mentioned the death cross in gold in my video five weeks ago. Since then, the price has made another leg lower and found a confluence of support. The comes from the 61.8% Fibonacci retracement of the rally from February through July last year, former highs and lows and the $1700 level. This entire move lower from the record high down to below $1700 looks like a classic ABC correction, which would imply we’ve seen a bottom. That said, for now the short-term trend remains down and there could be opportunities to fade the latest bounce under a down-sloping trendline.

 

OK let’s switch gears to the economic calendar briefly. We kick off the week with retail and industrial data out of China, where massive annual gains are expected a year after the country locked down in response to the coronavirus. Tuesday sees Japanese industrial production, the Germany ZEW survey and US retail sales. Wednesday sees Eurozone CPI, Canada CPI and the Federal Reserve rate decision, accompanied by the latest Fed forecasts. Thursday is Australian unemployment data and the Bank of England meeting then we round off with our third and final major central bank meeting from the BOJ on Friday.

 

Rising Treasury yields over the past month have added to the bearish outlook for gold. Holdings of the biggest gold ETF, the Spider Gold Trust have fallen to their lowest since April last year. That confirms what we can see from the price action- that speculators are losing interest in buying gold. Yields have been rising in anticipation of higher inflation and we saw that confirmed in US CPI data last week, which is back up at 1.7% for February. Now President Joe Biden’s $1.9 trillion stimulus package has passed, extra inflation can be expected. Higher bond yields are no good for gold, which has no income stream attached to it.

 

OK so we understand the bearish case but what’s the bullish case for gold? Is there any fundamental reason to think the price might have bottomed here? Well for one, there is a built-in assumption behind the rise in bond yields that the Fed is going to taper its asset purchases as inflation rises and the economy recovers. 

 

This week we have the FOMC meeting as well as an update to quarterly Federal Reserve economic projections. Everybody is waiting to hear what the Fed has to day about rising bond yields. If they say they will tolerate them, then that opens the door for yields to rise even further. That would be more of the same bad news for gold. However, if the Fed suggest that bond yields near current levels are ‘unwarranted’ then that would imply they might take some action to bring them down again such as via ‘yield curve control’. Any sign that the Fed wants to put a cap on bond yields from either a statement by Chair Jerome Powell or via its inflation forecasts would be a good thing for the price of gold.

 

Right thanks everyone, good luck trading this week and make sure to subscribe so you don’t miss the next episode of the week ahead.
 

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