Can FOMC and US NFP Fuel a Breakout for Gold?

The upcoming rate decision from the Fed tonight, followed by key NFP data at the end of the week, is expected to put the months-long "wait and see" narrative to the test.

Key Elements Driving Rate Expectations

• The Fed is widely expected to keep rates unchanged at 425-450 bps.
• The focus for markets is likely to be on expected hints around a rate cut in September or whether the pause will continue.
• The latest data suggests some tariff pressure on inflation, but not as much as initially feared.
• Growing divisions among FOMC members on the outlook could lead to dissenting votes.

Waiting One More Month

Markets are practically sure that at the end of its two-day meeting on Wednesday night. The doubt lies in what happens at the next meeting, with only a 60% chance of a rate cut. Usually, the Fed likes to give advance notice of an impending policy change. If a cut is to be expected in September, investors would seek hints in Fed Chair Jerome Powell's post-rate decision press conference.

FOMC members have maintained a "wait-and-see" narrative, arguing that rates needed to be kept on hold as tariffs were expected to increase inflation. But after months of trade wars, than anticipated. And now, trade deals that would prevent higher tariffs are being implemented. This has led to growing divisions among Fed officials, with the WSJ's Fed Watcher Nick Timiraos predicting that two governors might dissent at the upcoming meeting. It's been five years since there was a dissenting vote, a sign of the growing fracture among Fed officials.

The Job Market Is Key

Even FOMC officials who argue in favour of keeping rates unchanged acknowledge that easing will be needed in the future and point to weakness in the labour market. Friday's release of the July Non-Farm Payrolls is expected to show that , down from 147,000 the month before. Meanwhile, the unemployment rate is predicted to rise to 4.2% from 4.1%.

On Thursday, the Fed's preferred measure of inflation, June core PCE, is expected to remain unchanged at 2.5%. This contrasts with the official inflation report, which showed rate due to tariffs. Some FOMC officials have pointed to the low collection rate of tariffs as evidence that inflation could rise as business pricing decisions catch up with policy.

Gold Prices Squeezed by Triangle

Recent improvement in risk sentiment after major trade deals were announced has pushed gold below the lower triangle trendline it has been trading in. The yellow metal could extend to the latest swing low at $3250 per ounce if this turns out to be a breakdown, with the next support at the prior swing low at $3122. However, if the pattern holds above $3250, a triangle validation above the upper trendline and Bollinger Band near $3410-$3430 could expose the all-time high at $3502, followed by fresh records.

Source: SpreadEx | Gold, Spot