Which way will gold go in the days ahead?

2:45 PM September 18, 2023

Gold is currently in a wait-and-see technical configuration. The Fed's September 20 interest rate decision could trigger either an uptrend or a downtrend.

Links between interest rates and gold:

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  • A rise in Fed interest rates would make the US dollar more attractive to global investors. This would boost the value of the dollar (with investors buying US dollars to take advantage of higher yields), which would mechanically reduce the price of gold, since it is quoted in dollars.
  • Gold is correlated with inflation. If inflation is rising, investors will buy gold to protect their money rather than hold a currency that is losing value. This is because gold is a safe-haven asset in which investors have confidence and whose supply is limited (unlike currencies, whose supply is controlled by central banks). A rise in interest rates means a fall in inflation, and therefore a fall in the price of gold.
  • And vice-versa, if rates fall, gold should rise by the same mechanisms described above.

Wait-and-see technical configuration:

The gold price is currently in a compression triangle. An upward break would suggest an uptrend, while a downward break would suggest a downtrend. The FOMC meeting on September 20 could trigger either scenario.

GOLD in D1 timeframe. Source: xStation5.


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