Gold waits for Fed decision
It’s been the same old story with gold prices over the last few days.
The precious metal remains stuck within a range with bulls and bears on standby until the next major catalyst. Such a trigger could come in the form of the Federal Reserve monetary policy decision later today.
Markets widely expect the Fed to leave monetary policy unchanged. However, this will not stop investors from closely scrutinizing the statement for more clues on the central bank’s next move. It’s worth keeping in mind that the Fed sent shockwaves across financial markets last month with their hawkish “dot plot” surprise. But since then, Federal Reserve Chairman Jerome Powell has stuck to his view that the recent spike in inflation is “transitory”. Powell has remained persistently dovish despite consumer prices accelerating and the US economic outlook improving.
If Powell sticks to the script and repeats the Fed’s ongoing “transitory mantra” this could offer gold bugs a helping hand. However, any whiff of hawks during the meeting or change to the dovish tune could punish zero-yielding gold.
One thing to keep in mind is that numbers do not lie. Annual inflation in the US is already at a 13 year high, while the economy is expected to expand at a stronger pace in the second quarter of 2021. If this pattern persists, the Fed may find it increasingly difficult to defend its dovish monetary policy stance. Such developments could create obstacles for gold bugs down the road.
In the meantime, gold continues to wobble around the $1800 psychological level as of writing. Since the start of the week, prices have shed roughly -0.2% but are up over 1.6% this month. Sustained weakness below $1800 may inspire a decline towards $1760. However, if bulls can snatch back control above $1800, the next key level of interest will be at $1825 which is just below the 200-day Simple Moving Average. A breakout above $1825 could signal a move higher towards $1842.