The key question for gold will be whether or not the Fed is going to be able to change investor sentiment towards the yellow metal
As much as there might be a short-term reaction to the Fed today, gold's big picture outlook still rests on how investor appetite continues to play out.
Gold ETF holdings were cut once again in the last session, marking a 22nd straight day of declines - the longest losing streak in at least 10 years. SPDR Gold Shares' holdings kept steady but the chart pretty much reflects the trend in investor appetite:
Going into the FOMC meeting today, the big issue for gold is whether or not it can defy the rise in yields and keep the focus on the more dovish Fed policy that is likely to continue until 2023 at the earliest.
As such, the dot plots may offer a probable knee-jerk reaction to gold prices later today.
As things stand, gold is keeping just below short-term resistance at $1,740 and if Treasuries sell off later, expect that to take the dollar higher and gold lower as a result.
That will very well put pressure back on the $1,700 level with further support seen closer to the month's lows @ $1,676-80 and then the trendline support @ $1,669.
Those will be key downside levels to watch in case gold breaks down in a stronger fashion, which could put the emphasis back on a fall towards $1,600 potentially.
As much as the Fed would love to ring in a more dovish tone while not being too controlling about the bond market, they can't have it both ways and that's the exact same dilemma for gold as well at the moment.
The Fed isn't going to hike any time soon and odds are, money markets are getting too ahead of themselves in pricing in a move by the Fed already.
A roughly 70% rate hike is priced in for December 2022 and that reflects a potentially limited scope for more upside in yields or downside risks for assets associated with that.
I reckon that once the market gets comfortable with fully pricing in that scenario, that could see gold start to rebound more strongly unless the Fed starts to hint at a taper - which is likely still some distance away, possibly Q4 2021 or Q1 2022.
Not to mention that whatever the market is pricing in now is also contingent on how supportive economic data - notably inflation - will be in the months ahead.
As for a short-term reprieve later, a bounce above $1,740 will be a positive technical push for gold but gains may quickly stall around the swing region close to $1,760-63.
And unless investor appetite turns around, it is tough to bet on a sustainable upside in gold - much like the outlook in Treasuries no matter what the Fed outcome may be today.
