Gold Price Forecast: Can FOMC Minutes provide a spark?
- Gold price trades around key $1,835 support, awaiting next catalyst.
- Market will scrutinize last Federal Reserve meeting minutes looking for more monetary policy clues.
- PCE disinflation should continue, but any surprise could have a notable impact on Gold.
Gold price keeps trading around the key $1,830-$1,835 support area on Wednesday as chippy market action continues while market players wait for the next price action catalyst. American stock markets closed Tuesday in the red, ignoring upbeat US S&P Global PMIs as surging geopolitical tensions over the first anniversary of the Russian-Ukrainian war dominated the sentiment. Rising US Treasury bond yields supported the US Dollar and dented Gold price. Wednesday’s economic docket in the United States will be focused on the release of the Federal Open Market Committee (FOMC) Minutes at 19:00 GMT, where traders will look for clues on whether the Fed voting members are considering a return to the tightening monetary policy. This release could have a limited impact on the markets, though, as the Fed meeting took place before the ground-changing January Nonfarm Payrolls report, and it might be considered somewhat outdated.
Gold news: Small details in the FOMC Minutes can be market-moving
The Federal Reserve (Fed) will publish the minutes of its last policy meeting late in the American Session, with the whole FOMC assessing the monetary policy. It will be key to see whether some policymakers saw the need for the Fed to reconsider 50 bps rate hikes in case they saw enough evidence to suggest that the slowdown in inflation was temporary. Such a development could revive bets for a 50 bps hike at the next meeting and weigh heavily on Gold price.
Eren Sengezer, Senior Analyst at FXStreet, mentions that some FOMC members might have considered a return to higher interest rate hikes:
Cleveland Fed President Loretta Mester said last week that she saw a ‘compelling case’ for a 50 bps rate hike at the last policy meeting. On the same note, ‘I was an advocate for a 50 bps hike and I argued that we should get to the level of rates the committee viewed as sufficiently restrictive as soon as we could,’ St. Louis Federal Reserve’s James Bullard said.
If not, markets are unlikely to read too much into the FOMC Minutes ahead of the Fed March meeting, where the revised Summary of Projections will be unveiled.
US PCE disinflation trend to continue
The US Bureau of Economic Analysis (BEA) will publish on Friday at 13:30 GMT the Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred gauge of inflation. Gold traders and investors will watch the data release closely, as Core PCE inflation is forecast to rise by 0.4% on a monthly basis. Still, the annual figure is expected to decline to 4.1% in January from 4.4% in December. The market reaction should be straightforward, with a softer-than-expected monthly PCE inflation weighing on the US Dollar and vice versa, with Gold price reacting the opposite way.
Considering that the CPI report already revealed that inflation remained sticky in January, it would be surprising to see this data have a long-lasting impact on markets.
Time to buy Gold, says Standard Chartered
Strategists at Standard Chartered foresee a buying opportunity in Gold after the recent slide:
Gold broke below a strong support level at $1,840; the next support is at $1,810, followed by $1,780.
“We would gradually add exposure to Gold (especially those who are underinvested), given that XAU/USD is starting to look oversold. Moreover, central bank demand remains strong and we expect that to continue supporting Gold prices.
Gold price: Chinese economy re-opening and risk sentiment dynamics
China’s zero-covid policy ended at the end of 2022, and the second-largest economy re-opening effects should spill over throughout 2023. One of the biggest takeaways is that this should bump Gold demand, as China (and India) are two of the biggest world Gold consumers and purchasers. Of course, the performance of the US Dollar will be vital in assessing how big this rise in demand can be, as both the Chinese Yuan (CNY) and the Indian Rupee (INR) have been underperforming badly against the USD – the INR, in particular, hit an all-time low in October 2022.
All in all, the fact that Gold price might react positively to positive economic developments in China reinforces the idea that the yellow metal might have conceded the status of being the ultimate safety net for traders and asset managers to the mighty US Dollar. Market sentiment is not always a straightforward dynamic, and that might change over the course of the year, but Gold might be, these days, more of a risk-on asset than a safe-haven one.
Gold price in 2023: Up-and-down action
Financial markets have been a two-tale story for the early part of 2023, in which Gold price has reflected in its price action like no other asset. XAU/USD rode an uptrend during all of January with the market optimism about inflation slowing down and constant Federal Reserve dovish talk, only to see a drastic turnaround back to the old dynamics in February after a hot US Nonfarm Payrolls (NFP) report. The US economy adding more than 500K jobs in the month of January shifted the market expectations for the Fed easing its monetary policy, and the US Dollar has come back to the market King throne.
Gold price opened the year at $1,823.76 and reached a year-to-date high of $1,960 on February 2, right in between the first Federal Reserve meeting of the year and the surprising release of the US jobs report for January. Since then, the ongoing downtrend has been relentless, reaching levels close to the yearly open, around $1,830.
Gold price daily chart