Higher Chance of Rate Hikes Could Signal a Crash in Gold Prices

The SPDR Gold Trust ETF (NYSE:GLD) could see some downside pressure soon, as the odds for a September Federal Reserve interest rate hike are rising considerably.

From DailyFX.com:

The recent comments by Fed Chairwoman Janet Yellen at the Jackson Hole meeting did strengthen the Dollar which pushed gold prices lower. Recently, the Fed has been trying to get traders to believe that there is a potential for rate hikes coming so the market doesn’t become complacent. The Fed Fund futures are projecting a 42% chance of a rate hike in the September 21 meeting, which is the highest level in 3 months. What makes this number more interesting is that this meeting is just over 3 weeks away.

This creates a pressure cooker environment for gold prices. At 42%, a ‘no hike’ in September becomes a disappointment for those planning for it and may send gold prices higher. If they do hike in September, then you have 58% who were not expecting it and may need to play catch up which could send the Dollar soaring, which the Fed is not particularly interested in.

Gold Prices Drop as Fed Rate Hike Odds Rise

So what does this mean for gold prices? It could depend largely on some key technical price levels.

From a technical perspective, the $1311-1320 zone is still an area of interest. If this zone holds, look for prices to move higher and retest the highs near $1375 and possibly higher towards $1435.

A break down below $1311 suggests that another pattern is in play and opens the door to $1250 and possibly $1200.

Such a downturn in gold prices would spell big trouble for the GLD. $1200 per ounce gold would represent an approximate 10% GLD downturn to under $115.

GLD-2016-08-29

The GLD was mostly flat in premarket trading Monday at $126.00 per share. The largest ETF tied to gold prices has risen 24% year-to-date.

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