Gold Outlook: Dollar Rally, FOMC, and the Trump Effect

Key Events

• Dollar Rally May Be Losing Momentum: Despite a bullish dollar rally post-election, it may be approaching a key resistance level as the FOMC decision nears
• Gold's Nearly 100-Point Plunge: Following the election results, gold's steep drop has intensified market anticipation for tonight's FOMC meeting
• Middle East Geopolitics: Resolutions are unlikely before 2025, sustaining some haven demand for gold
• Trump's Impact on Trade and Geopolitical Stability: Concerns about trade wars and heightened global tensions weigh heavily on economic outlooks worldwide

Trump Victory and Geopolitics

A Bloomberg opinion recently stated, "America deserves Donald Trump, the world doesn’t," reflecting global concerns over the economic and geopolitical impacts of Trump's policies as he heads toward the White House by 2025. Domestically, his inflation-driven growth agenda may push rates higher, while fears of trade conflicts and inflation risks add to global uncertainty.

Initially, these concerns boosted gold’s appeal, but as political uncertainty settled with Trump’s win, gold slipped below 2700. Meanwhile, unresolved Middle Eastern tensions, unlikely to ease before 2025, may continue to support upside risks for both gold and oil.

FOMC Meeting

The FOMC decision is a critical factor amid volatile fundamentals for the U.S. dollar and broader markets. While the Bank of England is expected to cut rates by 25 bps, the Fed may face greater challenges balancing a volatile labor market, persistent services inflation, and Trump’s agenda of tax cuts, tariffs, and spending hikes.

The latest ISM Services PMI, revisiting 2022 highs, adds further complexity to the Fed’s rate path amid inflationary pressures.

Technical Analysis: Quantifying Uncertainties

Gold Outlook: 3-Day Time Frame

Source: Tradingview

Gold remains within a primary uptrend that began at the October 2023 low, with the recent uptrend from the June 2024 low of 2293 respecting a parallel channel. This channel aligns with the pre-election high of 2790 and the subsequent post-election drop to 2643, forming a critical support zone at the bottom end of the 2600 range.

This area intersects with the one-year uptrend’s consecutive higher lows, suggesting potential for either a breakout or a deeper correction. The scenarios are the following:

Bullish Scenario: A close above 2790 could propel gold’s uptrend towards 2890 and 3050, marking a continuation of the broader uptrend.

Bearish Scenario: a close below 2600 could extend gold’s drop towards 2530 and 2480, signaling a deeper correction phase.

--- Written by Razan Hilal, CMT – on X: @Rh_waves