Gold is trading in a bearish trajectory as the market awaits the Fed’s hawkish stance. Investors are cautious ahead of Wednesday’s Federal Open Market Committee (FOMC) meeting. Despite the current decline, gold is poised to achieve its third monthly gain, up nearly 4% in May.
The impact of the Federal Reserve on the gold market
Traders await Wednesday’s Federal Reserve meeting. Amid this wait, gold is trading lower on Tuesday. Currently, yellow meal is moving below $2,320. Despite this decline, gold has increased by approximately 4% this month. Thus, the shiny metal is on track for its third consecutive monthly gain.
The focus is on the decision the Federal Open Market Committee will announce this Wednesday, where a hawkish shift is expected in response to recent inflation trends. Swaps traders have changed their expectations, according to Bloomberg. Accordingly, they foresee a maximum of two interest rate cuts by the end of the year. This will be the smallest rate cut since November 2023. High interest rates generally reduce the appeal of gold because it does not generate interest.
Strong demand and geopolitical tensions
cryptokoin.comAs you follow from , gold has increased by over 12% since the beginning of the year. This is supported by strong demand from Asian markets, particularly China, and ongoing geopolitical tensions in regions such as Ukraine and the Middle East. The World Gold Council reported that central banks made a record start to the year in gold purchases. Additionally, a weaker US dollar, partly due to speculation about Japan’s intervention in foreign exchange markets, also supported gold prices.
ANZ analysts expect rise after correction
Geopolitical instability and central bank demand have been the key drivers of gold’s recent gains. The focus has now shifted towards macroeconomic indicators and central bank policies. Upcoming US nonfarm payrolls data and the Federal Reserve’s policy direction will be critical in shaping market expectations. Despite the current pullback, ANZ analysts remain positive on gold. Analysts predict it will rise to $2,500 after a healthy correction.
Short-term forecast: Gold’s price path is upward!
Market analyst James Hyerczyk evaluates the short-term outlook for gold as follows. The expected hawkish stance of the Federal Reserve will particularly affect interest rates and the value of the US dollar. It is possible that this will significantly affect the financial environment. A hawkish stance often leads to higher interest rates. This strengthens the dollar as yields become more attractive compared to other currencies. This strengthening of the dollar makes other currencies more expensive, reducing demand. Therefore, this typically puts downward pressure on gold prices.
However, the long-term outlook for gold remains fundamentally bullish. Despite possible declines in the short term due to the strengthening dollar and rising interest rates, ongoing geopolitical risks and continued demand, especially from central banks and Asian markets, provide strong support to gold prices. In addition, geopolitical tensions continue to escalate. It is possible that this will revive the attractiveness of gold as a safe haven. Thus, it can offset the impact of the strengthening dollar. In summary, although the Fed’s hawkish actions may temporarily limit gold’s rise, ongoing demand and macroeconomic uncertainties suggest that gold’s price path will rise once these immediate pressures subside.
Gold price technical view
Analyst James Hyerczyk also looks at gold’s technical outlook. The short-term trend is downwards. However, the medium-term trend is upward. Despite several days of consolidation, traders remain uneasy due to the current distance between the short-term bottom and the 50-day moving average in an uptrend. A break below the short-term April 23 low of $2,291.46 could trigger downward momentum to accelerate towards the 50-day moving average of $2,218.07. However, it is possible that recapturing the minor top at $2,352.64 could breathe some life into the remaining bulls.
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Read more: Fed Interest Rate Decision Is Approaching: How Will Gold React?