Fed action to determine trajectory of gold price: Emkay Wealth

Gold prices, which are trading near their key support levels, will hold on to this zone depending upon the state of the US economy and the stance of the US Central Bank at the upcoming Federal Reserve policy meeting.

Gold prices have support at $1,970 – $1,990 as the US dollar has softened post the latest job data.

On Monday, gold futures slipped on the Comex on the strength of the Dollar Index (DXY). They were trading around $1,971.90, down by $5.30 or 0.27% from last close.

“Gold is expected to hold well at the support levels, much of which would depend on the fortunes of the US economy. The recession may be a touch and go, and if that is going to be the actual case, then gold will be able to make only limited gains. The recent data from the US is still mixed,” an Emkay Wealth Management report said.

The Emkay report also highlighted a widespread belief that the US Fed will most likely take a pause this time and hold interest rates at current levels. Though there has been an absence of any final statement from the Fed on the trajectory of policy rates, it said.

While the Fed Chairman indirectly hinted at the possibility of a pause, the other Fed officials, quite a number of them, sounded like there is enough room for the Fed funds rate to rise even beyond the 6% level, from the current range of 5%-5.25%, the report said.
The improving labour market and the unemployment levels in the US indicate the underlying strength of the economy and the action from the US Fed will provide a cue and the likely movement of gold prices, going ahead, it said further.The uncertainties surrounding the growth prospects of the global economy have provided support to gold prices. “The tight money policies pursued by the central banks are expected to pull down the rate of economic growth in most economies. A slowdown enveloping the larger economies could put gold in the spotlight as a safe haven and also as something that retains value even in uncertain times.”

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