Gold Prices Forecast: XAU/USD Treads Cautiously Ahead of Fed Decision

Highlights

• Ahead of the Fed’s decision, gold prices remain muted; rate hikes on the horizon?
• Spot gold dips slightly, staying below its recent peak since September 5.
• Real Treasury yields elevate pre-Fed meet, hinting at a possible hawkish-pause stance.

Federal Reserve’s Upcoming Verdict

Gold prices displayed a hesitant demeanor on Wednesday, with investors treading lightly in anticipation of the Federal Reserve’s policy announcement. Despite expectations of the U.S. central bank retaining its current interest rate stance, the wider market is bracing for potential rate hikes as the year progresses.

As of 05:45 GMT, spot gold had dipped by 0.1% to stand at $1,929.86 per ounce, slightly below its Tuesday peak, the highest since early September. Concurrently, U.S. gold futures mirrored this decline, settling at $1,951.10.

Economic Climate and Gold’s Outlook

Amid this anticipation, real Treasury yields have notably maintained their higher levels. This trend embodies the market’s collective prediction of a hawkish yet non-active approach from the Fed, thus inducing a restrained outlook on gold. With Treasury Secretary Janet Yellen emphasizing the need to align U.S. growth with potential rates to achieve inflation targets, the backdrop of soaring oil prices further complicates the scene, suggesting the possibility of a prolonged period of elevated rates.

Potential Impacts and Predictions

According to a note from NAB Commodities Research, gold prices might face a downward push if the Federal Reserve adopts a tougher stance, especially in light of the recent August U.S. CPI and PPI data releases. The ongoing scenario also points towards a potential consolidation for spot gold prices within the $1,900 to $1,890 range, after failing to breach the $1,934 to $1,953 resistance.

Market Sentiment and Additional Dynamics

The financial community’s spotlight remains squarely on the Federal Reserve’s forthcoming policy meeting, which is expected to provide clarity on interest rate prospects and broader economic forecasts. The prevailing consensus, underpinned by the CME’s FedWatch Tool, anticipates a near-certain rate status quo post-meeting, combined with a one-in-three chance of another rate hike pre-2024. Key to the unfolding scenario will be insights from Fed Chair Jerome Powell’s press conference, potentially outlining the bank’s end-of-year strategy.

Short-Term Forecast

In sum, the balance of probabilities indicates a continued hawkish lean from the Fed, aiming to nudge inflation towards its 2% goal – a scenario not particularly favorable for gold. Alongside, other central bank meetings, including those at the Bank of Japan and Bank of England, await market reactions, further shaping the trajectory of gold in the immediate term.

Technical Analysis

The current 4-hour price of Gold stands at 1931.03, slightly above the previous 4-hour price of 1929.83. The commodity currently stands above its 200-4H moving average of 1919.585 and above the 50-4H moving average of 1920.93, suggesting  potential short-term bullish momentum. This sentiment is further reinforced by the 14-4H RSI reading of 60.03, indicating a moderately strong momentum without being overbought.

The commodity remains positioned between its main support area (1893.07 to 1885.79) and its main resistance zone (1946.99 to 1954.88). Overall, the market sentiment leans toward a cautious bullish outlook, with the near-term direction being controlled by the two moving averages.