Fundamental Overview

Gold is trading near weekly lows as hedging activity ahead of the FOMC decision and renewed escalation on the US-Iran front weigh on the precious metal. The move comes as traders position for a policy update that could influence short-term volatility in a market that has already been confined to a broad range for weeks.

Iran launched a “surprise attack” against US forces in the region tonight. All missiles and drones were intercepted, but the escalation increased the risk of a prolonged conflict.

All eyes today are on the FOMC decision. The Fed is expected to keep interest rates unchanged at 3.50%–3.75%. The consensus expects up to two dissenters to vote in favor of a rate hike at this meeting, likely Fed's Logan and/or Fed's Hammack. The Summary of Economic Projections (SEP) will not be released at this meeting.

Forward guidance is likely to remain limited, with Fed Chair Warsh expected to avoid offering any major policy signals while emphasizing data dependence and the Fed's commitment to price stability.

Hawkish surprises would include more than two dissenters or a rate hike at this meeting. A “dovish” surprise, by contrast, would be a perfect consensus with no dissenters.

If the Fed delivers a hawkish surprise, gold could fall to new monthly lows as financial conditions tighten. Conversely, a dovish surprise would likely spark a relief rally, with traders beginning to position for a possible stagflationary scenario.

You can read the comprehensive Fed preview here: https://investinglive.com/central-banks/fed-preview-it-s-all-about-the-dissenters/

Gold Technical Analysis – Daily Timeframe

On the daily chart, gold is still hovering around the major downward trendline. Sellers are likely to continue leaning against that trendline, with defined risk above it, in an effort to push the price to new lows. Buyers, meanwhile, will want to see price break higher so they can build for a rally toward the next trendline around the 4,500 level.

Gold Technical Analysis – 4-Hour Timeframe

On the 4-hour chart, price action has been mostly range-bound since late June, leaving traders with little to do except wait for technical breakouts or fundamental catalysts. Buyers will need a break above 4,200 resistance to gain more confidence in a reversal of the trend. Sellers, on the other hand, are likely to step in near that resistance with defined risk above it to position for a move toward 3,885.

Gold Technical Analysis – 1-Hour Timeframe

On the 1-hour chart, there is little else to add because the near-term direction will be determined by the FOMC decision. A hawkish surprise would trigger a selloff toward 3,885 and potentially lower, while a dovish surprise would lead to an upside breakout and a move toward 4,200 resistance. The red lines define today’s average daily range, but they would not apply if the FOMC decision produces a surprise.

For reference on the average daily range, see: https://investinglive.com/Education/trading-tip-know-the-average-daily-range-adr-20220207/

Upcoming Catalysts

Today, the FOMC rate decision is due. Tomorrow brings the US PCE price index, Advance Q2 GDP, and Jobless Claims. On Friday, the week concludes with the US Q2 Employment Cost Index. Traders will also continue monitoring US-Iran developments, which adds another layer of uncertainty to the backdrop around gold.

Economic calendar: https://investinglive.com/EconomicCalendar