E How To Trade Gold Ahead Of FOMC?

Gold price may show no clear direction until Wednesday as investors are awaiting clues on future interest rate path. With a rate hike being likely on Wednesday, in the short term gold may approach the nearest support level at USD 1235. Then it may turn north again, aiming 1250-1255. If the FOMC commentary turns out dovish, gold may even break this resistance opening the way to USD 1280. in this case, upside potential would obtain additional support from technical situation as the 50-period moving average would cross the 200 MA, while it has already crossed the 100 MA in November. Upside trend on gold is also justified by the economy heading into a slowdown and political uncertainty in euro zone.

Factors supporting gold may however worry stock markets. The US S&P 500 index, which is still playing with 2600 points, may finally fall below this support, opening the way to 2510-2530 pts. Still, after the FOMC meeting, that may be slightly dovish, stocks may rebound, perhaps testing 2600 pts. However, possibly softer FOMC rhetoric is not necessarily good news for cyclical assets as it stems from worries about the real economy. Thus, downside risk prevails for S&P 500 in mid-term horizon.

Stocks seem to await FOMC also in Asia. In the short term, the Hang Seng index seems well supported at 26000 pts., which level should hold assuming no hawkish statement from FOMC. The index is however moving within a downward trend and the short term upside potential is limited. The nearest level where traders are likely to take profit is located at 26800 pts.

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