Gold Bounces Ahead of Fed Decision as Market Awaits Interest Rate Hike

The Federal Reserve is set to make a decision on interest rates today at 2 p.m. Eastern, with a hike priced in at 94 percent. The market has already reacted to this expectation, with gold bouncing off its neckline to trade near $4,383 overnight and silver leading the charge. This profile is consistent with short-term tops since Labor Day, where gold bounces before a decision but often fails to follow through.

The bond yields have also contributed to the market's behavior, with the 10-year yield reaching 5.04 percent on Tuesday, its highest since 2007. Meanwhile, crude oil prices are easing from a four-month high, despite Saudi Aramco canceling September cargoes to Europe and Brent settling at $108.75.

Przemysław K. Radomski, CFA, notes that the interest rate decision days tend to produce uncertainty, which temporarily boosts precious metals prices. However, after the decision, uncertainty will decrease regardless of the outcome. The key now is how the market reacts to the Fed's announcement and whether gold closes above or below its neckline tonight.

The USD Index favors a bigger move to the downside, and Radomski warns that if the two-year yield rises on the decision, it could be seen as hawkish, regardless of the statement. He will be monitoring the reaction in real-time and providing updates if necessary.