Forex Trading

Gold prices waver ahead of FOMC

Gold’s response to FOMC speculations

Gold prices saw an uptick on Monday, though the gains were restrained due to market caution in anticipation of significant upcoming events, including the Federal Open Market Committee’s (FOMC) announcement on Wednesday. XAU/USD experienced a modest increase of around 0.2% in early afternoon trading in New York, finding support near the USD 2,150 level.

The Federal Reserve is set to conduct its March meeting this week. Despite expectations for the central bank to maintain its current policy settings, led by Jerome Powell, there may be adjustments in forward guidance and economic projections, particularly due to recent disappointing inflation trends.

Disinflation dilemma: impact on Fed’s strategy

Recent CPI and PPI reports have indicated a worrisome trend where disinflation progress is slowing, or potentially reversing. Consequently, the Fed might adopt a more conservative stance, delaying a shift to a more accommodative policy and narrowing the extent of anticipated easing measures. This scenario could result in only two quarter-point rate reductions in 2024, contrary to the three initially projected.

Should the policymakers signal a less accommodative approach and postpone the easing cycle, US Treasury yields and the US dollar are likely to surge, leading to a recalibration of interest rate expectations by Wall Street. Such developments could undermine the ongoing rally in precious metals, potentially causing a significant downturn in this market segment, placing gold in a precarious position shortly.

Gold’s path forward

Alternatively, if the Fed maintains its previous stance and signals nearing confidence to commence cost-cutting, gold could be well-positioned for an upward trajectory. However, the current data presenting increased inflation risks may diminish the likelihood of a dovish FOMC outcome.

FOMC meetnig probabilities

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