Gold Seeks Safe Haven Amid Expected Rate Hike
Gold prices have rebounded ahead of the Federal Reserve's (Fed) monetary policy announcement, but traders are cautious about taking aggressive positions. The precious metal is currently trading at around $4,350, up 1.30% on the day, after a modest pullback in Oil prices and US Treasury yields. However, the gains are being capped by a firm US Dollar (USD), which is holding near two-week highs around 99.70.
The Fed's decision to raise interest rates for the first time since July 2023 has been widely expected, with markets pricing in a 25 basis-point rate hike. Strategists at ING expect the Fed to deliver a 'consensus 25bp' rate increase 'to 4.0% today,' noting that 'markets are pricing in 23bp for today, 52bp by year-end, and 89bp by June.' They caution that a surprise hold would likely deliver a big blow to the Dollar.
Higher borrowing costs usually weigh on Gold prices, but with a quarter-point increase almost fully priced in, the metal's reaction is likely to depend more on the updated Summary of Economic Projections, including the dot plot, and Fed Chairman Kevin Warsh's post-meeting remarks. A hawkish Fed signal pointing to more rate increases could weigh on Gold, while an avoidance of committing to another rate hike could allow the metal to build on its recovery.