Five Key Areas to Watch as Fed Decision Looms

The Federal Reserve's two-day meeting is nearing its end, and markets are already pricing in a high probability of a rate hike. According to CME FedWatch, the rate hike is already priced at around 85-90% probability. This means that the actual vote by the Fed is unlikely to move markets significantly.

However, there are five key areas that could still impact gold prices: speculators' positioning, the dot plot, official data on central bank buying, oil prices, and physical demand for gold. The World Gold Council's August China update shows that gold jewelry demand is expected to increase due to restocking ahead of the peak fourth-quarter season.

The CFTC data shows that legacy non-commercial gold speculators are net long 231,960 contracts, up 3,836 on the week. This indicates that positioning has actually grown more one-sided heading into the meeting, rather than less. The narrower managed-money category did trim its net long position, but still shows a large and largely unchanged speculative long.

Goldman Sachs' nowcast of central-bank gold buying accelerated to 100 tonnes a month in June, up from 66 tonnes the previous month. This suggests that official-sector demand is a larger and steadier floor under gold than the published numbers alone suggest.