The gold market is sitting tight ahead of the upcoming FOMC meeting announcement this week. The Fed meeting begins Tuesday and concludes Wednesday afternoon. It is widely expected that the Fed will raise rates again, although by just 25 basis points this time around. Trading in gold and other markets may be more dull and light this week as the markets await the Fed’s decision and the Jerome Powell press conference after. Both gold and stocks are seeing slight corrective pullbacks Monday, with gold down a few dollars per ounce and stocks modestly lower in early afternoon action. The trends in both markets remain higher, however, and today’s dips could prove to be bought as the day progresses.
In the biggest data point of the week, the Fed’s commentary will likely be far more important than the decision to hike rates by 25 points. It is currently expected that the Fed will continue to raise rates through the first half of the year. Despite some recent inflation data pieces showing inflation is starting to moderate, the Fed will want to make sure the job is done before it begins cutting rates again. What that might mean specifically is anyone’s guess, but it seems unlikely the Fed will begin easing rates until the second half of the year or sometime next year. Markets may know and understand this already but are eagerly awaiting the signal from the Fed that easing is on the way. Once the Fed provides that signal, it could provide the gold bulls with a green light to take prices even higher, possibly into the new all-time high territory.
If the Fed hikes by 25 points this week, it is unlikely to have a major impact on markets. If the Fed does not hike rates or hikes by more than 25 points, then things could get interesting. A stronger rate hike could signal to markets that the Fed is still very concerned about inflation. This could lead to selling across asset classes, with both stocks and gold potentially being hit hard. If the Fed decides not to raise rates this week, it could signal a more dovish line of thinking by the central bank. This could provide the gold and stock markets with some bullish activity that could see prices rise substantially.
The next several months will likely bring more of the same. The markets are awaiting further clarity from the Fed, but the Fed may not provide enough clarity until it signals a policy change. While such a change could come at any time, it is unlikely to arrive in the next few months and would almost certainly come in the second half of the year. In the meantime, the bulls will try to avoid a close below the $1900 level while the bears will look to produce one. The next upside target for the bulls is $1950 on a closing basis.