Gold price (XAUUSD) is down by more than 1% today as traders react to the Fed interest rate decision that has pushed the US dollar higher. The precious metal is trading at $1,945, which is slightly below the yesterday’s high of $1,975. Still, David Kelly, an analyst at JP Morgan believes that gold, together with other risk assets will benefit from the lower interest rates.
In the interest rate decision yesterday, the Fed did what most analysts were expecting. It did not tweak interest rates and the quantitative easing program. The bank also signalled, like Jerome Powell had done earlier, that rates will remain at the current level for longer. Indeed, in the dot plot, the Fed suggested that the rates will not be changed for the next few years.
Such monetary policy is positive for gold price for two main reasons. First, lower-for-longer interest rates are likely to spur inflation. And the Fed has already said that it will not hike rates even after the rate of inflation reaches its target of 2%. That is a positive thing because most gold investors usually see it as a viable hedge against inflation.
Second, lower interest rates will remove the incentive for people to save money. In other words, it will lead to demand for risk assets like gold. This is the argument that Kelly made in his interview with CNBC yesterday.
So, is the price of gold set to rally?
Gold price technical outlook
The daily chart shows that gold price has been moving sideways recently. Indeed, even after the decline made today, the price remains almost where it was when the week started. The price is also along the 25-day weighted moving average but is slightly above the 50-day WMA. Most importantly, the price has formed a symmetrical triangle pattern, which is approaching the level of confluence.
Therefore, I suspect that gold price will break out higher in the near term as bulls aim for the next resistance level at $2,000. On the flip side, a move below the important support of $1,900 will invalidate this trend.
Gold technical chart