Fed Rate Hike Looms as Gold Holds Steady Above $4,300

The Federal Reserve is expected to raise interest rates this week, but gold prices have held steady above $4,300 per ounce, suggesting that a single rate hike may not have as much impact on the market as previously thought.

CME FedWatch tool puts the probability of a rate hike near 90%, and despite August U.S. CPI data reinforcing market expectations of rate hikes, spot gold has held above $4,300 per ounce.

The underlying fundamentals for gold remain intact, with rising sovereign debt concerns and central bank gold purchases providing support for long-term allocation.

Naeem Aslam, Chief Market Strategist at Zabe Capital, believes the Federal Reserve's credibility is under scrutiny, providing strong support for gold. He notes that if the Fed raises rates, U.S. Treasury yields will still fall short of market expectations; but if it opts to hold steady, its policy credibility will come into question.

The near-term pullback in gold prices can be viewed as a buying opportunity, with weakening U.S. dollar credibility and continued gold purchases by central banks providing solid support for long-term allocation.