Price of Gold Fundamental Daily Forecast – Dovish Tone from Powell Could Trigger Short-Covering Rally

Gold futures are inching higher but in a tight range early Wednesday, as investors kept their powder dry ahead of a U.S. Federal Reserve interest rate decision that could determine the next major move in bullion.

At 08:18 GMT, December Comex gold is trading $1739.30, up $3.60 or +0.21%. On Tuesday, the SPDR Gold Shares ETF (GLD) settled at $160.09, down $0.14 or -0.09%.

Fed Prepared to Hike Rates

The U.S. Federal Reserve is widely expected to raise interest rates by 75 basis points for a second straight meeting as it attempts to tame red hot inflation without triggering a recession.

However, there are a handful of analysts who believe a 100 basis point rate hike is still in the cards, especially since Fed Chairman Jerome Powell recently made it clear that nothing is off the table for July including 100 bps or more if necessary.

Additionally, one hedge fund manager said a series of one percentage point increment hikes would be more efficient to ease inflation and the markets can recover sooner.

All Eyes on Powell’s Press Conference

With the rate hike a given and likely priced into gold, the market moving event could be Fed Chair Powell’s post-meeting press conference.

Gold prices could fall further if Powell comes across as hawkish. This will mean that he sees no threat of recession and feels the economy could handle another 75 basis point rate hike in September.

We could see a strong short-covering rally if Powell’s tone is dovish. In this case, he may suggest the Fed tap the breaks a little in September with a 50- or 25-basis point rate hike. He could also express some fear of a recession.

Short-Term Outlook

Unless the Fed surprises with a 100-basis point rate hike, Powell’s press conference is likely to be the main focus for gold traders on Wednesday. They just simply want to know if the Fed will continue to battle inflation, or turn their attention to preventing a recession.

Technically speaking, we’re looking for an upside bias to develop on a sustained move over $1729.60, and for the downside bias to resume on a sustained move under $1709.10.

Taking out $1763.10 will also be a sign of strength with $1798.50 to $1822.60 the next major target area, while a big volume break under $1694.50 is likely to trigger an acceleration to the downside.