Good morning team,
We have done well trading metals over the past month and we are looking to continue the same theme over the next week.
This week, the economic calendar is packed full of risk events from the US with the main event being the FED interest rate decision and press conference. Firstly, interest rates are widely expected to remain on hold, however investors are looking towards the talk regarding bond tapering for an indication as to when the FED will begin to remove monetary support from the market. Now, if the FED announces a reduction in bond purchases, they will still be printing USD just at a slightly slower rate. However, with the US economic data getting progressively worse over the past month the FED may not look to reduce supply as quickly as the market is expecting. Furthermore, even if the FED reduces the money supply, rates are till on hold at 0.25% whilst inflation is above 5%. This is giving a “real interest rate” of -5.28% which is the perfect environment for metals to move higher as gold is used as an inflation hedge. Furthermore, the large decrease in US GDP last week tells us there is less output of goods and services which will also put upside pressure on prices over the Christmas period.
US Real Interest Rates
If you take a look at the start and peak of the previous gold bull runs, they align perfectly with the movement in real interest rates with an inverse relationship. With inflation potentially looking to move higher over the next couple of months while interest rates remain at 0.25%, it sets up a bullish outlook.
GOLD 4 Hour Chart
Trade Setup: BUY market execution, current price 1793, stop loss 1770 and take profit 1830.
Stop loss: 230 pips
Take profit: 370 pips