Wednesday’s Federal Reserve meeting will also be a meeting where the Fed outlines its dot plot on rate projections. Interest rate markets are expecting no change from the Fed on Wednesday, so the forward guidance from the dot plot is going to be crucial in determining the Fed’s intended rate path. Inflation expectations are fooling, but the US economy is still strong, so there could be room for one more rate hike this year and a higher-rates-for-longer message.

The best situation for gold would be if the Federal Reserve indicated it could stop hiking interest rates and started to express concerns about the prospects of US economic growth. If the Fed did this, you would expect the dollar to fall, US yields to fall, and gold to move higher. However, it is unlikely that it gives such a clear message like this.

It is worth being aware of a seasonal pattern for gold out of the Fed’s meetings over the last 15 years. Gold has gained over 55% of the time in the 15 days after the Federal Reserve’s meeting. The average return has been 0.42% and the maximum game has been 13.97%. So, with inflation expectations falling will this be enough to decrease Fed hiking expectations, and lift gold in the days after the Federal Reserve meeting?

Major trade risks: The major trade risks here would be if the Fed signals a higher-for-longer message.

 


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