The wait is almost over and market investors will finally find out if the Federal Reserve will raise rates today or signal that it may not happen until much later.
If the Fed does not hike but provides guidance that they are getting closer to pulling the trigger, we may see gold prices initially rally. Initial resistance may come from the $1,130 to $1,136 zone. It is around that area that we could see the formation of a bearish Gartley pattern. If valid, that reversal pattern could signal a major drop that may eventually target the $1,100 handle.
In case the Fed emphasizes its focus on the world economy and that inflation and labor market data do not support the normalization of rates, we could see the bearish Gartley pattern immediately invalidated and price may target the 100-day SMA at $1,151.90.
The gold 240-minute chart shows that since price formed a bullish Gartley pattern(shown in green) on September 11th, gold has steadily rebounded. Currently the precious metal is finding tentative support from the 50-day SMA ($1,117.40). If we do see a rate hike and they do not rule out future hikes to happen in the near future, we could see gold collapse $50 by the end of the week.
If we see a rate hike but a commitment to wait and see an extended period of time, we could see gold initially drop but then eventually rally significantly.
The trade: Sell Gold at $1,136 with a stop loss at $1,151 with a take profit at $1,106. The risk/reward ratio is 1:2
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading