Gold begins to recover ahead of Federal Reserve decision

Gold prices rose in European trading on Wednesday for the first time in three sessions, beginning to recover from a six-week low as buying emerged at lower levels, supported by a weaker US dollar and a retreat in the 10-year US Treasury yield from its highest level in 19 years.

The Federal Reserve concludes its policy meeting later today, with markets pricing in a 92% probability of a 25-basis-point interest rate hike, which would be the first increase in US borrowing costs since July 2023, as policymakers seek to contain mounting inflationary pressures in the United States.

The Price

• Gold prices rose 1.1% to $4,341.06 an ounce, from an opening price of $4,293.91, after recording a low of $4,275.60.

• At Tuesday’s settlement, gold lost 0.15%, marking its second consecutive daily decline. Prices had hit a six-week low of $4,253.73 an ounce the previous day, pressured by rising US Treasury yields and a stronger dollar.

US dollar

The US Dollar Index fell more than 0.1% on Wednesday, retreating from a two-week high and heading for its first loss in three sessions, reflecting weakness in the US currency against a basket of major and minor currencies.

As is widely known, a weaker US currency makes dollar-denominated gold more attractive to buyers holding other currencies.

In addition to profit-taking, the dollar is losing ground as investors refrain from building fresh long positions ahead of the US monetary policy decision.

US Treasury yields

The yield on the 10-year US Treasury note fell around 0.55% on Wednesday, retreating from its highest level in 19 years and heading for its first decline in eight sessions, putting downward pressure on the US dollar.

Global oil prices

Oil prices fell more than 1.0% on Wednesday, retreating from four-month highs amid correction and profit-taking, as well as an increase in US crude inventories.

US interest rates

• According to the CME FedWatch Tool, markets currently price an 8% probability that the Federal Reserve will leave interest rates unchanged at today’s meeting and a 92% probability of a 25-basis-point increase.

• Markets currently price a 1% probability that the Federal Reserve will leave interest rates unchanged at its December meeting and a 99% probability of a 25-basis-point increase.

• The Federal Reserve’s quarterly economic projections, due later today, are expected to provide further clues about the future path of US interest rates.

Federal Reserve

The Federal Reserve concludes its regular policy meeting today to assess developments in the world’s largest economy and determine the appropriate course for monetary policy, with the central bank widely expected to raise interest rates by 25 basis points to 4.0%, which would be the first US rate hike since July 2023.

The interest rate decision, monetary policy statement and economic projections are due at 18:00 GMT, while Federal Reserve Chair Kevin Warsh is scheduled to speak at 18:30 GMT.

The statement, projections and Warsh’s comments are expected to provide crucial clues about the path of US interest rates for the remainder of the year, particularly in light of recent economic developments linked to the Iran war following renewed military strikes between the United States and Iran and the continued closure of the Strait of Hormuz.

Gold outlook

We expect that if the outcome of the Federal Reserve meeting is more hawkish than markets currently anticipate and signals the possibility of further interest rate hikes, it would deal a blow to gold and risk assets more broadly.

If the outcome is less hawkish and signals a preference for a more gradual pace of tightening, it would provide some support to market sentiment and could lead to a further recovery in gold prices and global equities.

SPDR Fund

Gold holdings at the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, increased by around 2.85 metric tons on Tuesday, bringing the total to 1,050.28 metric tons.