Gold price action edged -0.6% lower on balance last week to trade back around the psychologically-significant $1,800-level. This marks the first weekly decline after rising for four-weeks straight. The precious metal unsurprisingly faced headwinds as the recent sharp decline in yields saw relief and the US Dollar strengthened. Gold prices tend to move inversely with the direction of yields and the broader DXY Index.

That said, the looming Fed rate decision scheduled for release on Wednesday, 28 July at 18:00 GMT is poised to spark a pickup in market activity. This creates considerable potential for gold volatility to accelerate alongside gyrations in Treasury yields and USD price action. While the Federal Reserve is widely expected to leave monetary policy unchanged, there is growing risk that the central bank tweaks language to its press statement to convey potential upcoming adjustments to the pace of asset purchases.

Gold Price Chart With 5 Year Treasury Real Yield Overlaid

This brings to focus FOMC guidance on making substantial further progress toward reaching its maximum employment and price stability goals. Measures of inflation have risen significantly over recent months, which likely contributed to the decision by Fed officials bringing forward their projected taper timeline at last month’s meeting.

However, in light of the still-standing transitory inflation narrative, as well as mounting covid delta variant concerns and the latest NFP report, I think it is most likely the Fed reiterates its current stance and messaging. This could see real yields remain under pressure, which in turn, stands to keep gold price action well supported. On the other hand, if the updated Fed statement sends real yields turn higher, that would likely correspond with lower gold prices.

Gold Price Chart With US Dollar Index Overlaid

Chart by @RichDvorakFX created using TradingView

Aside from real yields, I will be monitoring how the US Dollar trades around the Fed next week to help gauge where gold prices might head next. Another influx of broad-based US Dollar strength following the Fed meeting might steer gold price action sharply lower. If this scenario materializes, though, the gold pullback could provide attractive opportunities for bulls to consider as discussed in my Q3 top trade idea.