Gold has spent much of the month of July oscillating around the $1800 level. In fact, in the last week gold's trading range has narrowed to the point that it is moving less than 1% per day:
Gold (Daily)
This is an unprecedented level of tension around a big psychological round number level. The oscillation is bound to give way to a big directional resolution, however, the questions are obviously "when?" and in "which direction?"
The Federal Open Market Committee (FOMC) will make its latest policy announcement tomorrow afternoon at 2pm EST, followed by Fed Chair Powell's press conference at 2:30pm EST - it's a reasonable bet to assume that the Fed announcement could generate significant volatility in markets, including gold.
Predicting the direction that gold will move next is always challenging; one can make the case that August is typically a bullish month for the yellow metal (gold has risen roughly 2/3rds of the time during August in the last twenty years for an average monthly gain of 2%). However, one could also argue that seasonality is much less important this year considering the number of unknowns including the future course of the pandemic and Fed monetary policy.
What I do know is that it is unlikely that gold will remain pinned to $1800 for much longer, and with each passing day it becomes increasingly likely that we will get a strong directional move, either above $1850 OR below $1750 (POLL: Which way do you think gold will move next?).
This morning, I put on an options trade that only makes money if gold makes a big directional move in the next nine trading days. To find out how I am trading gold, gold stocks, options and many other stocks/ETFs you can subscribe to the Trading Lab.
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