Gold price bulls need FOMC hawks turning to doves to keep surging

• Gold price trims 3% after peaking above $2,000 at the start of the week.
• Market full attention is on FOMC meeting, with consensus expecting a 25 bps dovish rate hike.
• Federal Reserve members showed hawkish rhetoric before blackout period, banking crisis.
• Future rate hike projections will determine if the Gold uptrend can keep going.

Gold price is quietly trading below $1,950 on Wednesday during the European session as the market pauses action ahead of a decisive Federal Open Market Committee (FOMC) interest rate decision on Wednesday. The Federal Reserve (Fed) will release its monetary policy statement, including the Summary of Economic Projections (SEP), also known as the dot plot, at 18:00 GMT.

The Federal Reserve decision on Wednesday is a unique one, as FOMC members face sticky inflation levels well above the target on their mandate, but they probably can’t be as aggressive (or hawkish) as they would like to be after the collapse of Silicon Valley Bank triggered an international banking crisis. Higher interest rates mean tighter credit conditions, and bank balances might suffer as a result.

Gold bulls have profited from falling US Treasury yields

A key asset to track to understand the recent Gold surge has been US Treasury bond yields, mainly through the 10-year bond benchmark yield. A sharp fall from levels above 4% to 3.6% at the time of writing has triggered a sell-off in the US Dollar, supporting the yield-less precious metals. Analysts at ANZ bank note this development and the rising Gold demand from many market players, including central banks:

“Inflation expectations over the next 12 months have retreated to 4%, but the Fed’s determination to tame inflation remains a key short-term risk.”

“Speculative positions have fallen, but ETF holdings are seeing net inflows.”

“Central banks continue to add more Gold to their reserves to hedge against geopolitical and economic risks.”

Phil Carr, Head of Trading at The Gold & Silver Club, defines this Fed interest rate decision as the "biggest" since 2008 when the Global Financial Crisis struck.

Throughout history, every time the Federal Reserve has engaged in an interest rate hiking cycle, they have kept going "until something eventually breaks”.

And that's the exact situation the Fed finds themselves in, once again. 

Carr says the Federal Reserve is in a very difficult position going into this meeting:

There is no deny that the Fed is caught between a rock and a hard place. If the Fed continues hiking interest rates, then they inevitably risk breaking more things – if not in the real economy, then in the financial system.

If the Fed pauses their rate hiking campaign – then they will lose any credibility they had left. However if the Fed cuts rates – that will look like a panic move, which could spark a bigger crisis.

FOMC Speech Tracker: Do hawkish remarks still carry weight after banking crisis?

Gold price reaction to the meeting will depend on whether the FOMC leans more toward respecting their mandate and attacking inflation with higher interest rates in the current and future Fed meetings, or if they show cautiousness to prevent more issues in the financial system.

We have plugged together all the speeches from Federal Reserve board members, whether they have voting attributions in 2023 or not, since their last meeting on February 1 to review the bias the FOMC board might have when they meet and decide on interest rates and the dot plot. The question is whether their opinions have changed and if hawks have become doves after the SVB bank crisis surfaced, so this tracker might have to be taken with a grain of salt this time around.

This is the FOMC speech tracker for the February-March period:

Date	Speaker	Result	Quote
Feb 7	Powell	Balanced	Jobs report was strong, need to do further interest rate increases
Feb 8	Williams	Balanced	We still have work to do on rates
Feb 8	Waller	Hawkish	No sign of 'quick' decline in inflation
Feb 12	Harker	Balanced	A US debt default would have enemies cheering
Feb 13	Bowman	Balanced	Expect we will continue to raise interest rates
Feb 14	Logan	Hawkish	Must be prepared to keep raising interest rates for longer than anticipated
Feb 14	Harker	Balanced	Not yet finished round of interest rate hikes to reduce inflation
Feb 14	Williams	Hawkish	The work to control too high inflation is not done
Feb 16	Bullard	Balanced	Continued rate increases would “lock in” slowing inflation
Feb 17	Mester	Balanced	A recession could happen as rates rise
Feb 17	Barkin	Dovish	Seeing some progress on inflation with demand normalizing
Feb 17	Bowman	Balanced	Your guess as good as mine as to what happens next in economy
Feb 22	Williams	Hawkish	Don't want to allow inflation expectations anchor to slip
Feb 24	Jefferson	Hawkish	Wage inflation too high to be consistent with timely return to 2% inflation
Feb 24	Mester	Hawkish	Financial market alignment with Fed much closer than before
Feb 27	Jefferson	Hawkish	Lower inflation without unecessary amount of disruption in job market possible
Mar 1	Kashkari	Balanced	Wage growth is now too high to be consistent with 2% inflation
Mar 2	Bostic	Dovish	Could be in position to pause by mid to late summer
Mar 7-8	Powell	Hawkish	Costs of not getting inflation down will be extremely high

*Voting members are highlighted in bold.

	TOTAL	Voting members	Non-voting members
Hawkish	8	7	1
Balanced	8	6	2
Dovish	2	0	2

 

From 18 speeches tracked by our editorial team, eight were deemed as hawkish pieces, eight more were considered as balanced, and only two leaned dovish. The hawkish voices came mostly from voting members, which makes the hawkish bias more profound ahead of the FOMC Meeting. It’s also remarkable that the two dovish instances came both from non-voting members, Thomas Barkin and Raphael Bostic.

This would have presented a clear hawkish outlook going into this meeting, but a more dovish stance is on the cards after the banking crisis.

Gold price technicals show bullish bias

Gold price extended its pullback on Tuesday to a loss of around 3% from the peak seen early on Monday above $2,000, finding support at $1,940. This is close to the 23.6% Fibonacci retracement level of the big rally seen between March 9 and March 17.

Gold uptrend, as clearly seen in the daily chart below, is still intact, which might allow the bright metal bulls to trigger another upswing if the FOMC releases a dovish statement, with the SEP potentially hinting at an interest rate cut before the year-end, accompanying a 25 basis point rate hike for the current meeting.

Gold price daily chart