Will Gold Move Higher After Fed’s Decision On December 14?

Key Insights

• Gold traders prepare for the upcoming Fed decision, which will be released on December 14. 
• Markets expect that the Fed will raise the interest rate by 50 bps. 
• Fed’s commentary and economic projections will be the key drivers for gold markets next week. 

Lower Treasury Yields And Weaker Dollar Fueled The Recent Rebound In Gold Markets

Gold had a strong start of this year, testing highs at $2070 as traders bought safe-haven assets to protect themselves from geopolitical risks.

The Fed started to raise rates aggressively, putting significant pressure on gold markets. The strong U.S. dollar served as an additional negative catalyst for gold, which ultimately moved towards yearly lows at $1615.

The recent pullback in Treasury yields and the decline of the U.S. dollar provided material support to gold markets, and gold moved towards the $1800 level. Interestingly, Treasury yields keep moving lower while the Fed is expected to continue raising rates.

The FedWatch Tool indicates that there is a 79.4% probability that the Fed will raise the target rate to 425 – 450 bpd at the next Fed meeting on December 14. The rate is expected to peak at 475 – 500 bps and start moving lower in November 2023.

Will Gold Move Higher If The Fed Keeps Raising Rates?

The increase of the target rate to the 425 – 450 bps at the upcoming Fed meeting is priced in by markets. At this point, the Fed is expected to slow the pace of rate hikes in order to protect the economy from the potential recession.

It remains to be seen whether the Fed will be able to orchestrate a “soft landing” for the economy, but it will surely make a serious attempt to avoid doing too much damage during its fight against a inflation.

Most likely, gold traders will focus on Fed’s commentary after the Fed Interest Rate Decision. The key question is whether Fed will keep rates at the projected highs (475 – 500 bps) for many months or start pushing the rate lower as soon as possible.

Currently, markets are optimistic as they expect that the Fed will start cutting rates at November 2023 meeting. This is rather bullish for gold, which is supported by geopolitical tensions. If the Fed signals that it is worried about doing too much damage to the economy, gold markets will gain additional upside momentum after December 14.

For a look at all of today’s economic events, check out our economic calendar.