The Federal Reserve meets tonight and the markets are weighing up what the Fed will do. A 50 bps rate hike is expected, but will it hike rates by 75bps? Headline inflation is surging, but will the Fed decide to stress growth worries over and above inflation fears? The different outcomes of the meeting could have a very different impact on gold prices.
If the Fed decides to push back on the latest aggressive rate hike pricing from the short-term interest rate markets then that could send gold soaring higher. Any sense of the Fed growing concerned about slowing growth could send gold higher.
Gold has a strong period ahead during the summer months as often times gold purchases take place for the Indian wedding season. From July 08 and through to September 04 gold prices have gained ten times and fallen five times. The largest gain has been over 20% and the average gain has been just over 4%.
Will the Fed send gold soaring higher tonight?
Major trade risks: If the Fed signals a more aggressive rate hike then the USD could rise even further along with yields and that is usually a negative for gold prices.
Source: Giles Coghlan LLB, Lth, MA – HYCM