Gold prices were flat on Wednesday as investors refrained from placing big bets ahead of the Fed’s rate decision. Analysts are commenting on the impact of the Fed rate decision and Chairman Jerome Powell’s speech on the market and sharing their forecasts.
How will the Fed rate decision and Powell’s speech affect gold?
Spot gold held steady at $1,927.75 at the time of writing. U.S. gold futures slid 0.1% to $1,943.40. City Index senior market analyst Matt Simpson says gold should hold above the $1,900 level before the Fed meeting. In addition, the analyst states that the Fed message needs to be heard to grasp the next possible direction of gold.
cryptocoin.comAs you follow, the Federal Reserve will announce its policy decision at 10:00 CET. The Fed will hold a press conference by Chairman Jerome Powell after the rate decision. Meanwhile, the US central bank is expected to cut interest rates from 50 basis points in December to 25 basis points (bps). Matt Simpson assesses the effects of Powell’s speech as follows:
There’s a half-reasonable chance that Powell won’t do the dovish boost that the markets wanted… So we could see the dollar and yields inevitably rise if Powell stays quiet on a pause and pivot. This leaves gold vulnerable to a bump in the road at these peaks.
“Gold prices can fluctuate”
Meanwhile, data released Tuesday showed US labor costs rose at the slowest pace in a year in the fourth quarter as wage growth slowed. The Bank of England (BoE) and the European Central Bank (ECB) are expected to raise interest rates by 50 basis points on Thursday. Phillip Streible, chief market strategist at Blue Line Futures in Chicago, comments:
We have many event-based risks during this week. Therefore, investors need to pay attention to this. Gold prices can be volatile.
“FOMC, BoE and ECB will be in focus more on what they say than what they do”
A Reuters poll shows analysts and traders have raised their forecasts for gold prices, but expect higher interest rates to limit rallies. FXTM Senior Research Analyst Lukman Otunuga comments:
Given how markets expect the FOMC, BoE and ECB to make a move, the focus will likely be on what they say rather than what they do.
Markets are also awaiting the US jobs report for January, which will be released on Friday as labor market weakness translates to lower inflation.
“Fed rate decision and Powell’s speech are already priced in”
Some expect President Jerome Powell to defy expectations that the central bank will soon complete its rate hike cycle. Expectations that Powell could take action to suppress the rally in equities, as he made in his brief but eloquent speech in Jackson Hole, Wyo in August, helped bolster the US dollar this week and put pressure on major stock indexes. XM senior investment analyst Charalampos Pissouros comments:
It seems that market participants are already pricing in the hawkish messages from Fed Chairman Powell and his colleagues.
“This possibility leads to a scenario that punishes gold prices”
According to Ricardo Evangelista, senior analyst at ActivTrades, the dollar’s recent strength is due to the possibility that the central bank will indicate that rates will rise further and remain higher for longer than previously anticipated. In this context, the analyst makes the following statement:
This is a scenario in which the dollar acts as the preferred haven asset, penalizing gold prices, limiting any growth generated by persistent recession fears and high inflation.
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