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    Gold under pressure ahead of FOMC

    The price of gold spiked higher earlier this afternoon for no apparent reason, although a bounce back looked overdue anyway given that the stock markets had already slumped. Nevertheless, as the session wore on, gold started to head lower once again and equities soon bounced off their lows too. Evidently, traders are unnerved about the prospect of an earlier rate hike from the Federal Reserve and its impact on the dollar. If the Fed opts to drop the word “patient” from its policy statement on Wednesday then this could give rise to speculation about a June rate hike. This would most likely give the dollar another shot in the arm, which could be bad news of assets that are priced in the US currency such as gold and silver. It could also be bad news for US equities although European markets may come through unscathed.

    So, the next 24 or so hours could be a long wait for traders. That said, gold has now broken out of a pennant consolidation pattern which may encourage some technical trading. Clearly, the path of least resistance remains to the downside for gold with price being stuck inside a bearish channel, making lower low and lower highs. The only potentially bullish indication could be that the pace of the selling has slowed down in recent trade, as shown, for example, by the RSI divergence which has meanwhile made a series of higher lows. What’s more, gold is now not too far away from re-visiting the multi-year low of $1131.5 hit in November. So, there is a possibility for gold prices to stage a mini recovery from these levels soon. It is also worth watching the Fibonacci exhaustion levels for further support: the 261.8% extension level of the last notable upswing comes in at just below $1138 while the more important 127.2% extension level of the rally from January is at $1129.  Meanwhile the key resistance level to watch is at $1170. While gold trades below this level, the short-term trend would remain bearish.

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