Gold is under pressure near $4,000 an ounce ahead of the Fed's July decision, with the futures market putting the odds of a rate hike at 1 in 3. The FxPro analyst team says the metal's reaction will depend on the Fed's rhetoric and the number of dissenting votes; TD Securities sees gold heading towards $4,150 if no more than two officials dissent.
The Fed's decision is of paramount importance for gold. The metal is unlikely to stray far from the $4,000-per-ounce mark while the futures market anticipates two rounds of Fed rate hikes in 2026. Even without a rate hike this week, hawkish rhetoric could still weigh heavily on the precious metal.
Traders squaring positions ahead of the FOMC announcement have pushed the US dollar lower. The futures market puts the odds of a hike at 1 in 3 following the 28–29 July meeting. Because the risk of a surprise from the Fed is high, speculators are unwinding some of their record net long positions in the greenback, the highest since 2015.
Cooling jobs and slower inflation point to a hold
Data points to rates being held steady. June employment figures cooled after strong spring growth, and inflation has slowed. Several FOMC officials have stated that monetary policy is in the right place, and Kevin Warsh gave no indication of tightening in his testimony before Congress.
Advocates of monetary tightening argue the opposite. Starting a tightening cycle would signal the Fed's readiness to deploy all its resources to ensure inflation returns to the 2% target, as Warsh has repeatedly stated.
Without a 25-basis-point rise in July, the Fed may need to hike by 50 basis points in September. A move now would also let the new Fed Chair demonstrate his independence and the central bank's independence from White House directives.
TD Securities sees a path to $4,150
The US dollar risks weakening significantly if the Fed does not adjust its monetary policy and there are no more than two dissenting votes. TD Securities forecasts that the presidents of the Cleveland and Dallas Feds, Beth Hammack and Lori Logan, will vote in favour of a rate hike. In that scenario, gold could head towards $4,150 and beyond.
Hong Kong gold bar imports hit their highest since late 2014
Gold has reacted calmly to the rise in oil prices caused by Iran's unexpected strikes on US bases in Jordan. It has been just as calm about Hong Kong's increase in gold bar imports to their highest level since late 2014, which points to strong demand from mainland China.
History points the other way, however. When gold flows from West to East, from ETFs to Asian consumers, a downward trend in gold prices is the most common outcome.
Source: ActionForex
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