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Gold consolidates above $1960 an ounce in anticipation of today’s Fed decision

Autor: Financial Market
2 min

In anticipation of the Federal Open Market Committee’s (FOMC) interest rate decision, gold continues to consolidate above the $1960 per ounce level today.

″The markets assume almost without exception that the decision today will be in favor of a hike of 25 basis points. However, the main focus of the markets will be on the tone of Jerome Powell’s speech after the decision is announced″, shows to an analysis from XS.com.

The markets are trying to support their hypothesis that the rate hike expected today will be the last on the Federal Reserve’s path of monetary tightening, which has pushed interest rates to their highest levels in decades.

The Fed’s rate decision today follows a slew of numbers we saw earlier this month pointing to a continued slowdown in inflation. Annual inflation fell to 3% in June from 4% in May, the weakest reading since April 2021, and annual core inflation, which excludes food and energy prices, also fell to 4.8% in June. This compares with 5.3% in May.

Despite the significant decline, these figures are still above the Fed’s target of 2%. Accordingly, Powell’s speech today may suggest that maintaining monetary tightening and keeping interest rates at their current levels throughout the year may be necessary to keep inflation away from the Fed’s targets.

Continuation of the Fed’s aggressive statements could keep pressure on gold prices and prevent them from regaining their earlier gains at levels above $2,000 an ounce.

In addition, gold prices could benefit from expected pressure on the U.S. dollar if the European Central Bank maintains a very aggressive tone when it announces its interest rate decision tomorrow (Thursday) and also expects a 25 basis point hike.

We are also expecting more economic data, both the second quarter figures from US GDP and the personal consumer price index (PCE) figures for June.

In U.S. bond markets, two-year Treasury yields, which are very sensitive to changes in short-term interest rates, fell to 4.839% at the peak of yesterday’s decline, from 4.926% at the end of the previous session.

The decline in bond yields may reflect the market’s expectation that monetary tightening will indeed end, which could support gold prices.