FED meeting will set a new direction for Gold

By Dr. Renisha Chainani, Head- Research, Augmont – Gold for all

Last week, the European Central Bank began the central bank meetings with a dovish rate rise. Gold investors were looking for signs that interest rates had peaked, and they got them from the ECB last week, which relieved some of the Gold pressure. More central bank action is expected this week, with the Fed, BoE, and SNB all announcing their most recent policy choices. We can also expect the most recent global PMIs, as well as other data highlights. Moving forward, the Fed’s rate decisions will be critical for gold investors. If the US Federal Reserve turns out to be more hawkish than expected, gold may continue to suffer.

The Federal Reserve will hold its sixth FOMC meeting of the year this week. The FED has raised rates at every successive meeting since its March 2022 meeting, when it initiated a cycle of severe and restrictive tightening by lifting rates from 0% to its current level of 5.25%. This notion is reflected in the CME’s FedWatch tool, which now predicts a 97% chance that the Fed will not hike interest rates this week.

The Federal Reserve’s major monetary policy adjustments are data-driven, and the data required for a pivot by the Fed is data indicating that inflation is on track to reach its target of 2%. There is some disagreement over whether the Fed will impose another rate hike before signalling that their restrictive rate hike cycle is complete.

Furthermore, both Japanese and Chinese investors have become substantial gold purchasers in recent weeks, as the precious metal has reached record highs versus the Japanese yen around 284,000, and physical bullion premiums are also near all-time highs. At the same time, gold premiums on the Shanghai Gold Exchange over COMEX gold futures prices have reached new highs.

While gold is stalled in the short term, its long-term bullish prognosis remains unchanged. The support level for the gold price to keep an eye on will be $1900. Having said that, there is no doubt in my opinion that gold remains an appealing long-term investment. It’s only that the risks of a short-term correction are higher for the reasons stated. In the slightly longer term, we should see fresh strength in gold as central banks begin to ease their monetary policies again. Another positive reason for gold is that it is a safe haven asset. With fiat currencies undervalued over the world due to excessive inflation, gold is frequently regarded as a smart investment.

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