Market update: gold prices waver ahead of FOMC

Gold's response to FOMC speculations

Gold prices saw an uptick on Monday, though the gains were restrained due to market caution in anticipation of significant upcoming events, including the Federal Open Market Committee’s (FOMC) announcement on Wednesday. XAU/USD experienced a modest increase of around 0.2% in early afternoon trading in New York, finding support near the USD 2,150 level.

The Federal Reserve is set to conduct its March meeting this week. Despite expectations for the central bank to maintain its current policy settings, led by Jerome Powell, there may be adjustments in forward guidance and economic projections, particularly due to recent disappointing inflation trends.

Disinflation dilemma: impact on Fed's strategy

Recent CPI and PPI reports have indicated a worrisome trend where disinflation progress is slowing, or potentially reversing. Consequently, the Fed might adopt a more conservative stance, delaying a shift to a more accommodative policy and narrowing the extent of anticipated easing measures. This scenario could result in only two quarter-point rate reductions in 2024, contrary to the three initially projected.

Should the policymakers signal a less accommodative approach and postpone the easing cycle, US Treasury yields and the US dollar are likely to surge, leading to a recalibration of interest rate expectations by Wall Street. Such developments could undermine the ongoing rally in precious metals, potentially causing a significant downturn in this market segment, placing gold in a precarious position shortly.

Gold's path forward

Alternatively, if the Fed maintains its previous stance and signals nearing confidence to commence cost-cutting, gold could be well-positioned for an upward trajectory. However, the current data presenting increased inflation risks may diminish the likelihood of a dovish FOMC outcome.

FOMC meetnig probabilities

Gold technical analysis

Gold prices, after a subdued performance last week, stabilised on Monday, rebounding from the support level at USD$2,150. If the price gains momentum in the upcoming days, resistance at USD$2,175 might impede further advances. Yet, surpassing this threshold could shift focus to the record high near USD$2,195.

On the contrary, if the market sees a bearish turn, the initial support to monitor in case of a pullback appears at USD$2,150. To prevent an intensification of selling pressure, this level must be robustly defended by bulls; failing to do so could lead to a decline towards USD$2,085, with further potential losses eyeing the USD$2,065 level.

Gold technical chart

• _{This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.}