In recent weeks, gold prices have broken important price resistances. This has been a tumultuous year for the precious metal. Its price has fluctuated within a 20% range, and the Fed has been an extremely hawkish force in the market. Although prices have been building a range, recession risk and the Fed rate decision may continue to add pressure to the gold price.
The Fed will announce its latest policy decision this Wednesday. Most economists expect the Federal Open Market Committee to raise interest rates by 75 basis points. These hikes, which will range between 3.75% and 4%, will likely add to the cost of borrowing for businesses and consumers. Combined with a recession, these changes are likely to hurt millions of Americans.
The FOMC has already raised its benchmark lending rate by four hundred and fifty basis points from March to December. But with unemployment at a record high of 6.5 percent, the Fed will continue to pursue its policy goals of low inflation. A slowdown in global economic activity could help alleviate the negative effects of higher US interest rates, and the FOMC may even see a soft landing in the economy.
On Wednesday, the FOMC will publish its forecasts for the remainder of the year and into next year. The Summary of Economic Projections shows rates peaking at 4% in December and declining in 2023, and the FOMC projects inflation of 2.2% for the next two years. However, these numbers are far from the long-run inflation target of 2%.
In addition to the Fed rate decision, investors may have to face the fact that gold prices are already above the 200-day moving average and have crossed above a key support level. If the Fed continues to push the hawkish stance, the dollar and gold price could weaken. Similarly, if inflation continues to outpace the rate hikes, the Fed may be forced to pull back. That would lead to a gold price spike as investors flee the assets simultaneously.
Gold reached an all-time high in August, but has struggled since then. It is now trading at around $1,800 per ounce. After hitting a major technical “triple bottom” in September, the bulls may try to push prices to new highs in the near future. However, a bearish RSI divergence could bring more downside pressure.
While the Fed’s decision to increase the federal funds rate will undoubtedly put more pressure on the economy, the monetary policy could help savers. Although the Fed did not directly affect deposit rates, banks are steadily increasing their annual percentage yields. Several large money managers have recently switched their stance toward gold. Their long positions in the precious metal have had a positive impact on the spot price.
Gold prices retraced a good portion of their gains in the third quarter, but may still gain ground. The market is currently expecting the Fed to raise interest rates by 75 basis points this week, and the Fed’s Summary of Economic Projections projects that interest rates will peak at 4% in December and then decline to 1.4% in 2023.