Gold market holds its breath ahead of Fed decision

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(Kitco News) – The gold market remains stuck in neutral territory as investors wait for the Federal Reserve to make its final monetary policy decision this afternoon.

August gold futures last traded at $1,717 an ounce, roughly flat on the day. Meanwhile, September silver futures last traded at $18.745 an ounce, up more than 1% on the day.

Gold and silver price action has been relatively quiet this week as the market tries to determine how aggressive the US central bank will be after the summer. After a few back and forths, a 75 basis point hike is all but guaranteed. According to the CME FedWatch Tool, markets see a 26% chance of a 100 basis point move.

However, many economists and market analysts said markets are now looking beyond the July meeting and eager for any further forward guidance on interest rates, especially as recession fears continue to mount. grow.

Craig Erlam, senior European market analyst at OANDA, said in a note to clients on Wednesday that markets are already pricing in a sharp turnaround in interest rates in 2023.

“The Fed needs to walk a fine line because any validation of this will undermine its efforts to tighten and control inflation. Attention will be on its guidance over the coming months and how hawkish it will continue to be,” he said in the Note.

“It is difficult to say with confidence at this time which message investors would prefer, as falling yields have tended to lift stock market sentiment, but fewer rate hikes could lead to inflation risks or indicate an economy. Neither are ideal for equity markets,” he added. . “The safe play can be 75 basis points now and the option of a repeat in September, while emphasizing the data dependency of any decision.”

Han Tan, chief market analyst at Exinity, said gold prices could struggle as the market continues to price in another 1% rise in interest rates through the end of the month. year.

“If President Powell signals today that policymakers are sticking to their ‘pedal to the metal’ approach to stifle decades-high inflation, preparing even bigger hikes in the pipeline, that could send the dollar American into another rampage across the FX universe, while pushing spot gold into the area below $1700. This would also potentially lead to more carnage for risk assets,” he said.

The most important factor for gold today remains the US Dollar, which is also consolidating ahead of the Federal Reserve’s monetary policy decision. However, some currency analysts expect the Fed’s aggressive stance on interest rates to support the greenback as it trades just below last week’s 20-year highs.

“We are not yet ready to change our call for the strong dollar, especially if the Fed delivers a hawkish message as we expect,” said currency analysts Brown Brothers Harriman. “Ultimately, we believe the US economy remains the most resilient. However, we expect a period of consolidation for the dollar until the US economic outlook becomes clearer.”

Although gold prices hold support above $1,700 an ounce, market analysts at City Index said $1,680 is another important support level to watch.

Disclaimer: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. This is not a solicitation to trade commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for loss and/or damage resulting from the use of this publication.

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