XAUUSD – Gold prices are currently in a range, with the prices sitting above the support at $1,717 and hovering around $1,720 during the Asian session today. Investors are eagerly awaiting the outcome of the Federal Open Market Committee (FOMC) session tomorrow to determine the next trend for this commodity. Gold prices had started the week on a positive trend absorbing losses from last week. However, yesterday’s incremental profit pushed the price lower to the current level. Analysts forecast more profits taking place today ahead of the FOMC session tomorrow.
The fact that gold failed to benefit from the dollar weakness yesterday shows investors are unwilling to take risks and that more selling pressure exists for gold.
Given the high rate of inflation threatening the US economy, the US FOMC is expected to increase the rate by at least 75 basis points during this session. Others predict a 100 basis points hike just like Canada did last week. At the same time, some believe the FOMC might be dovish this time, slow down its rate, and return to 50 basis points due to fears of recession. Well, we will know better tomorrow what exactly the FOMC has in stock for the market this time.
What impact will the FOMC session tomorrow have on gold?
As already mentioned, the FOMC will be expected to hike the rate tomorrow. The manner of this hiking is unknown to us until this point. Still, we predict an aggressive interest rate hike from the committee this time.
However, whatever the committee’s decision tomorrow, it is essential to point out that all manners of rate hiking for a given currency had always boosted the strength of that currency in return. Hence, we can anticipate a strengthening of the dollar index from tomorrow if the interest rate is hiked by the FOMC tomorrow. Gold has been pegged to the US dollar, and both are mutually destructive relations. An increase in the dollar strength following an interest rate hiking tomorrow will disfavour gold for some time. This means we can expect more downside for gold if the rate is hiked tomorrow.
The extent of the crash we can expect for gold if the FOMC hikes the rate tomorrow depends on the basis point hiking, which the committee may decide to go with. Any interest rate hiking below 75 basis points will be considered as dovish. This means not so much crash can be seen for gold.
On the contrary, FOMC rate hiking tomorrow by any basis points above 75 could be considered aggressive. This will spell doom for gold and other commodities. Here, we might see gold fall back to the previous monthly low of $1,680 or even below it this time. Investors are advised to apply a proper risk management strategy while trading gold tomorrow as high volatility will be expected for this pair within this period.
Other Factors to influence gold ahead of the FOMC session tomorrow
There are two critical factors to cause volatility in gold prices today, ahead of the FOMC session tomorrow. These factors are discussed below:
- CB Consumer Confidence: This data gives an index of the consumers’ confidence in the economy and is often measured through household spending. A higher reading from this report shows that consumers still have confidence in the economy. Therefore we can expect more investors to come into the country. This will favour the US dollar and induce more downside for gold. On the contrary, should this reading come lower, it would suggest a loss of confidence in the economy, which will scare away investors, pushing them into gold. Therefore, we might expect temporary positive moves for gold if the report comes lower. The forecast for this data is 96.8, while the previous record was 98.7.
- Richmond Manufacturing Index: The RMI provides an index of the monthly manufacturing activity carried out within the Fifth Federal Reserve District, which includes: North Carolina, the District of Columbia, Maryland, Virginia, South Carolina, and West Virginia. Increasing productive activities in these significant US districts is a good sign of economic growth. It will mean a positive for the US dollar. This will be a piece of bad news for gold. On the contrary, should the reading come lower, we might expect the dollar to weaken today while gold will keep rising above the current support. The forecast for this data is -17, while the previous reading was -11.
