The gold price is hovering near $1,976, its lowest level in the last three weeks. The yellow metal continues to remain under pressure following the US CPI data that came in above expectations. Investors’ focus is now on the Fed’s interest rate decision.
Fed lowering expectations would be headwind for gold price
cryptokoin.com As you follow from , the gold price saw sharp sales after reaching its peak. After this, it fell below the critical $2,000 level. However, all is not over. According to Commerzbank strategists, gold will struggle if the Fed lowers interest rate expectations further. In this context, Commerzbank strategists make the following assessment:
The market further reduced its interest rate cut expectations. In fact, we believe that the market’s expectations that the first interest rate cut in the USA will be made as early as spring are a bit premature; We do not foresee such a step at least until the middle of the year. If the Fed lowers interest rate expectations further at today’s meeting, the price of gold may decline further.
Investors stand on the sidelines ahead of Fed interest rate decision
Despite the recent sell-off pause, the gold price looks fragile so far in Wednesday’s trading. In particular, US CPI data revived bets that the Fed would keep interest rates higher for longer. Investors are then avoiding placing new bets on the shiny metal ahead of this week’s biggest event risk: the Fed interest rate decision and policy outlook.
In fact, US CPI data came in line with market expectations. However, in the details of the report, the rise in the shelter index and the second-hand car and truck index caused the market to oppose the pricing that the Fed would cut interest rates next year. As a first reaction to the US CPI data, the US Dollar extended its intraday decline. But it rebounded quickly, along with U.S. Treasury yields, as investors digested the data and its potential implications ahead of Wednesday’s Fed decision.
Federal Reserve decision will shake gold
Expectations are that the Fed will keep interest rates in the range of 5.25%-5.50%. However, investors are still eagerly awaiting the upcoming Fed decision. However, comments from Fed Chairman Jerome Powell and the so-called Dot Plot chart will shed more light on the Fed’s monetary policy outlook amid expectations of a rate cut in the first half of 2024. These will likely hold the key to the gold price. Markets are currently pricing the probability of the Fed cutting interest rates in March at around 43%. Additionally, this probability for May is approximately 75%. Market analyst Dhwani Mehta comments:
If Powell and his colleagues dash expectations that the Fed will cut interest rates in the first quarter of 2024 by acknowledging the high level of inflation and still tight labor market conditions, the price of non-interest-bearing gold is likely to see a sell-off again as US dollar demand returns. In contrast, if the Fed’s projections confirm expectations for aggressive interest rate cuts and could completely collapse the Dollar, the gold price could stage a solid recovery. Meanwhile, the risk-averse market environment ahead of the Fed event will support the US Dollar and keep the upward attempts in the gold price under control.
Gold price technical analysis: Downtrend prevails
Market analyst Dhwani Mehta evaluates the technical outlook for gold as follows. As you can see on the daily chart, the gold price has found a strong hold below the multi-week low of $1,976. However, it is later on track to test the 50-day Simple Moving Average (SMA) at $1,970. The 14-day Relative Strength Index (RSI) indicator is below the 50 level, supporting the bearish trend.
If the bearish momentum regains strength, the flat 200-day SMA at $1,953 will come under threat. Below this, we should not ignore the test of the 100-day SMA at $1,941. On the other hand, for a sustainable recovery, the 21-day SMA must be accepted above $2,006 on a daily candlestick closing basis. Gold buyers will then target the November 27 high of $2,018. Thus, they will reach the $2,040 supply zone.
