Gold Price Forecast XAU/USD – Flat Ahead of Powell Remarks that Should Set the Tone

James Hyerczyk
Updated: Feb 1, 2023, 19:59 GMT+00:00

Traders widely expect the Fed to raise its benchmark interest rate by 25 basis points, and for Fed Chair Powell to issue hawkish remarks.

Comex Gold

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Gold futures are trading nearly flat and caught in an intraday range on Wednesday as investors kept their powder dry ahead of the highly anticipated U.S. Federal Reserve’s rate-hike decision later in the day.

At 14:55 GMT, April Comex gold futures are trading $1943.10, down $2.20 or -0.11%. XAU gold is at $1927.77, up $0.39 or +0.02%.

Fed to Raise Rates, Powell Expected to Issue Hawkish Message

Traders widely expect the Fed to raise its benchmark interest rate by 25 basis points, but the risk for bullish traders is that Federal Reserve Chairman comes across as too hawkish.

After the rate hike, Powell is expected to deliver comments in a press conference at which he is expected to tell the market that inflation is still uncomfortably elevated and that interest rates need to move higher.

The Fed is set to issue its policy statement at 19:00 GMT, followed by a press conference from Fed Chair Jerome Powell at 19:30 GMT.

Market – Fed Disparity

Ahead of the Fed rate announcement, the market thinks the Fed will stop raising rates in March in the 4.75% -5% range. Fed policymakers may be eyeing a June cutoff with the terminal rate over 5%.

Additionally, some traders are expecting Federal Reserve Chairman Jerome Powell to sound hawkish, meaning he will lean toward tighter policy and keeping interest rates high.

However, there are some who are expecting a more dovish tone from the Fed, or looking for signs that a pause in hikes or even a pivot is coming soon. Some also believe that recent economic strength likely means the Fed will be able to manage a “soft-landing” if there is a recession.

The disparity between what the market expects and the message the Fed wants to deliver is going to be the source of volatility today.

If the Fed comes across as too dovish then gold prices will soar. If the Fed is too hawkish then gold prices could plunge.

Economic Data Supports Fed Easing

Job creation in the private sector plunged in January as weather-related issues sent workers to the sidelines, payroll processing firm ADP reported Wednesday.

Companies added just 106,000 new workers for the month, down from an upwardly revised 253,000 the month before. Economists surveyed by Dow Jones had been looking for a gain of 190,000.

Short-Term Outlook

We’re looking for the Fed to raise rates 25-basis points and Powell to come out as hawkish. However, in the days leading up to the Fed announcements, it seems nearly every analyst was thinking the same way so we’re becoming pretty confident that both events are already priced into the markets.

Therefore, we’re looking for a counter-intuitive move. If both the Fed and Powell deliver what is expected then gold prices could rally because investors will conclude that “at least we’re moving closer to the end of the rate hikes.”

Whether that thought line proves to be valid will depend on whether inflation keep moving toward the Fed’s 2% target.

Keep in mind there may be several intraday swings in the gold market because traders will be reacting to headlines until they can digest the impact of the full statement and Powell’s remarks.

For a look at all of today’s economic events, check out our economic calendar.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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