Gold Price Fundamental Daily Forecast – 75 Basis Point Rate Hike Priced In; Fed Projections Set the Tone

Gold futures are edging higher on Wednesday as the market consolidates for a third straight session after hitting a 2-1/2 year low last week. The price action suggests investors have already priced in the widely expected 75 basis point rate hike by the Fed later today, and would likely be bearishly surprised by a 100 basis point rate hike that is still a possibility.

At 11:28 GMT, December Comex gold is trading $1683.50, up $12.40 or +0.74%. On Tuesday, the SPDR Gold Shares ETF (GLD) settled at $155.07, down $0.89 or -0.57%.

Besides the Fed rate hike at 18:00 GMT, gold traders are reacting to an announcement by Russian President Vladimir Putin of a partial mobilization announcement in Ukraine. Some say the news sparked a safe-haven response in the gold market, but there isn’t enough information to conclude that.

The rally in gold could be coincidental since the market is down over $300 since the war started in February. In other words, safe-haven buyers have had about seven months to react to the war and they haven’t. The traditional safe-havens are U.S. Treasurys, the U.S. Dollar and the Japanese Yen.

If you told me that gold is up because it’s relatively cheap, the global economy is headed into recession and the central banks were preparing to pull in the reins on their rate hiking expedition then the rally might be more believable.

What to Expect from the Federal Reserve

The Fed is expected to raise its benchmark interest rate another 75 basis points, its third such increase in a row. It will also release quarterly forecasts for inflation, the economy, and the future path of interest rates at 18:00 GMT.

Ahead of the Fed announcements, traders are pricing in an 81% chance of another 75 basis point rate hike and a 19% probability of a 100 bps increase.

Trader reaction to a three-quarters of a point rate hike may garner little response from gold traders, but a full-percentage point rate hike could drive prices down $70 to $100.

Furthermore, it’s not just the rate hike that will trigger a response by traders, the Fed projections could also move the market substantially. The Fed projections will offer a chance for investors to peak into the future since they will show how high the central bank will raise interest rates and how much officials expect their actions could affect the economy.

Additionally, Fed Chair Jerome Powell speaks at 18:30 GMT, and he is expected to emphasize the central bank will do what it takes to fight inflation and it is unlikely to reverse its rate hikes anytime soon.