Gold Price Outlook Hinges on Fed Rate Decision & Forward Guidance

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Gold Chart

Gold Price Talking Points

The Federal Reserve interest rate decision on tap for September 22 is likely to sway the near-term outlook for the price of gold as the central bank appears to be on track to scale back monetary support.

Fundamental Forecast for Gold Price: Neutral

The price of gold traded to a fresh monthly low ($1745) ahead of the Federal Open Market Committee’s (FOMC) quarterly meeting as the better-than-expected US Retail Sales report fueled speculation for an imminent shift in Fed policy, and fresh developments coming out of the central bank may drag on bullion if Chairman Jerome Powell and Co. deliver a tentative exit strategy.

Gold Price Outlook Hinges on Fed Rate Decision & Forward Guidance

Plans to taper the purchases of Treasury securities and Mortgage Backed Securities (MBS) should dampen the appeal of gold as it points to higher US interest rates, but bullion may face a more bearish fate if the central bank shows a greater willingness to normalize monetary policy sooner rather than later.

The update to the Summary of Economic Projections (SEP) may reveal a material shift in the monetary policy outlook as the slowdown in the US Consumer Price Index (CPI) reinforces the Fed’s expectation for a transitory rise in inflation, and an upward revision in the interest rate dot-plot may push the price of gold to fresh monthly lows as Chairman Powell and Co. currently forecast two rate hikes for 2023.

However, more of the same from Fed officials may prop up the price of gold as market participants push out bets for higher interest rates, and bullion may trade within a defined range over the near-term as it defends the March low ($1677) in the second half of the year.

With that said, the rebound from the August low ($1682) may turn out to be a correction in the broader trend rather than a change in market behavior as the FOMC appears to be on track to switch gears, and a material shift in Fed policy may drag on bullion as market participants prepare for higher US interest rates.

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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