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Gold price

Gold price edges down after Federal Reserve hawkish pause 

 

On Thursday, the price of gold (XAU/USD) weakened below $1,930 per ounce in early European trading hours, moving further away from its multi-week highs due to the prevailing strength of the U.S. dollar (USDX).  

The dollar index, a gauge of the currency's strength against a basket of other major currencies, climbed as high as 105.59 in early trading today — its highest point since early March. 
 
The currency’s rise followed a hawkish pause from the U.S. Federal Reserve — while the central bank maintained the target range for the federal funds rate at 5.25%-5.5%, as widely expected by markets, the released projections in the dot plot suggested the likelihood of one more rate increase later this year, followed by just two cuts in 2024.  

Meanwhile, the Bank of England (BoE) is scheduled to announce its monetary policy decision later today, and investors are divided whether it will proceed with another rate increase or pause its tightening efforts in light of easing inflation in the UK.  

The Bank of Japan is expected to provide an update on its monetary policy on Friday, and market participants are closely monitoring any indications of a potential shift away from the country’s policy of maintaining negative interest rates. 

As of 11 a.m. CET on September 21, the gold spot price traded at $1,923 per ounce, according to Bloomberg data. 

 

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Gold price forecast: Further upside uncertain, price resilient so far 

In its precious metals appraisal on September 18, German technology firm Heraeus outlined the commodity’s recent trajectory and forecasted a potential support level should the $1,900 mark give way: 
 

“The US dollar has been strengthening over the last six weeks, reaching its highest level since March and putting downward pressure on gold. The US labour market remains surprisingly healthy and headline inflation accelerated at the fastest rate in 14 months during August. Core inflation is trending lower but is unlikely to satisfy the Fed as the oil price has now risen 27% since mid-June and is likely to add to energy costs over the winter. Officials have commented that the strong data could indicate further tightening is required.” “Gold is likely to see pressure from the dollar strength and remain below its price highs from earlier this year until it becomes clear that the Fed is ending this rate hike cycle. The gold price found support just above $1,900/oz last week, but should that give way the next support level may be $1,810/oz.”

Despite the decrease in the gold spot price, some analysts have noted that the commodity has not given in to persistent pressure from the U.S. dollar. Daniel Hynes, Senior Commodity Strategist at Australia-based bank ANZ, said the gold price successfully held up against the Fed’s hawkish tone on Wednesday: 
 
 

“Gold was up strongly ahead of the FOMC’s decision, as a weaker USD boosted investor appetite. However, it pared those gains after the Fed left rates unchanged but signaled they will stay higher for longer than expected. The hawkish bent failed to dent enthusiasm for the precious metal. It also held up against surging bond yields, with the Treasury 2y rate climbing to its highest level since 2006.”

ANZ added that shifting market expectations regarding the Fed’s terminal rate may limit the upside for XAU/USD in the near term.  

The terminal rate represents the ultimate interest rate level that the Federal Reserve sets as its target during a cycle of either raising or lowering rates. This rate serves as the longer-term target rate at which both price stability and full employment are attained, often referred to as the neutral rate. 
 
 

“Gold’s macroeconomic backdrop looks a bit uncertain after the US Fed hinted at another rate rise this year though kept rates steady in the latest meeting. We expect shifting expectations around its terminal rate could cap the upside in the near term.  Investment demand remains lackluster, as investors wait for the Fed to end its tightening cycle,” ANZ strategists wrote on September 21.

Ole Hansen, Head of Commodity Strategy at Saxo Bank, maintained a “patiently bullish” view on gold several weeks prior to the Fed meeting: 

“At Saxo, we maintain a patiently bullish view on gold and silver and see the yellow metal eventually reaching a fresh record in the coming months. The timing for a fresh push to the upside, however, will remain very US economic data dependent as we wait for the FOMC to turn its focus from rate hikes to cuts, and during this time, as seen recently, the result is likely to be continued choppy trade action.”


The bank had previously issued an eye-watering gold price prediction for 2023 in December last year, saying that the commodity could rise to $3,000. 

Bank of America’s last gold forecast saw prices averaging the year around $1,923 an ounce — down more than 4% from their previous average of $2,009 an ounce, according to an observation by Kitco’s Neils Christensen. BoA stressed that the price of the yellow metal was “unlikely” to advance until the end of the Fed’s tightening cycle: 

"Gold prices are unlikely to rally until assets under management at [gold futures and gold-backed exchange-traded products] increase. This, however, is unlikely to happen until the Fed reaches the end of the hiking cycle," the analysts said. "Until then, the gold market looks supported at best, also because central banks keep increasing their gold holdings." 


The gold price forecast shared by economic data aggregator TradingEconomics saw the commodity trading at a potential average of $1,946.33 by the end of this quarter. The platform’s 12-month gold price forecast had the yellow metal trading at $2,015.39 by mid-September 2024. 
 
When considering gold and other commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.   

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