The Federal Reserve is starting a two-day monetary policy meeting, and it’s highly expected that interest rates will increase by 25 basis points on Wednesday afternoon.
The big question for many commodity analysts is whether this will be the last rate hike in the Federal Reserve’s most aggressive tightening cycle in over 40 years. According to the CME FedWatch Tool, there’s only a 20% chance of another rate hike in September.
Despite inflation having significantly decreased from the 40-year highs seen last year, analysts are sceptical that the Federal Reserve will be able to fully bring it back down to its 2% target. Notably, gold continues to be an appealing hedge against inflation, especially with interest rates nearing their peak and consumer prices remaining stubbornly high.
According to Nicky Shiels, a metals strategist at MKS PAMP, she believes that gold has promising potential since the Federal Reserve’s monetary policy is not expected to favour the U.S. dollar.
“We think the markets are itchy looking for reasons to sell the US$ and while [Federal Reserve Chair Jerome Powell] will indicate the inflation fight is not over, the market will look through to any dovish comments and understands well that the Fed is at the end of its hiking cycle,” she said. “The ECB rate hike trajectory is relatively more murky, inflation has begun to fall, but whether that’s enough to persuade Lagarde to pause (or stop) after this week, is less certain.”
The Fed’s monetary policy decisions and market expectations could create a favourable environment for the yellow metal.
