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Price of Gold Fundamental Daily Forecast – Fed Will Try Not to Rattle the Market While Maintaining Policy

By:
James Hyerczyk
Published: Mar 17, 2021, 15:59 UTC

The Fed could signal an intention to maintain low interest rates, cushioning gold’s losses and providing some support.

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Gold futures are trading steady on Wednesday, generally treading water ahead of a U.S. Federal Reserve meeting where policymakers are expected to reiterate their dovish policy stance despite improving economic projections.

According to Reuters, economists expect the Fed to forecast the U.S. economy will grow in 2021 at the fastest rate in decades, with unemployment falling and inflation rising, as the COVID-19 vaccination campaign gathers pace and a $1.9 trillion relief package washes through to households.

At 15:22 GMT, April Comex gold futures are trading $1728.10, down $2.80 or -0.16%.

Ahead of the Federal Reserve announcements, due to be released at 18:00 GMT, financial markets are pricing in three interest rate hikes through end-2023 so all eyes would be on the Fed’s ‘dot plots’ which signals the outlook for rates.

The Fed has kept interest rates pinned near zero for the past year, and has promised to keep them there until the economy reaches full employment, and inflation has hit 2% and is on track to exceed that pace for some time.

There are quite a few opinions about what the Fed will or won’t say in its statements and at Chairman Jerome Powell’s post-meeting press conference. They could be the source of volatility late in the session.

“Powell will (likely) state that inflationary pressures will probably be temporary and not that big … that will probably push up 10-year yields, the dollar and hurt gold a bit,” said David Madden, analyst at CMC Markets UK, adding bullion could fall towards $1,600 in the coming months.

Madden, however, said the Fed would likely also signal an intention to maintain low interest rates, cushioning gold’s losses and providing some support.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, told CNBC’s “Squawk Box Europe” on Wednesday morning, that he would be “astonished” if the Fed signaled that it would step in to dampen rising bond yields at these levels.

The 10-year Treasury yield has risen rapidly recently amid concerns about potential growth in inflation, as economies reopen and recover from the coronavirus pandemic. The 10-year yield started the year at 0.9%.

However, Shepherdson highlighted that this was still close to zero in real terms.”

Shepherdson believed that while Powell would once again push back on some of the market’s inflation fears, he suggested the Fed Chairman wouldn’t talk about tapering its bond buying program in Wednesday’s press conference.

He explained that this is because “as soon as the Fed starts talking about tapering, then yields will rocket immediately because that’s what markets do – you give markets an inch and they take a year – especially in Treasuries at the moment.”

“So the Fed therefore I think wants to keep this talk really dampened down as much as they possibly can until they can’t,” he added.

Shepherdson pointed out that this lack of indication from the Fed on when any policy changes might come was “kind of justifiable because this recovery is still a forecast.”

Daily Forecast

The challenge for the Federal Reserve is to continue to present its easy monetary policy in the face of a resurgent economy, percolating inflation and a stock market ripping higher. It needs to explain that position to investors and assure them that even if the status quo remains, that won’t provoke policymakers to change course, nor should they.

“The basic line is, ‘Everything looks a little better, but there’s still a lot of uncertainty and we’re not going to do anything soon.’ I’m sure we’ll hear that,” said Bill English, former head of the Fed’s Division of Monetary Affairs and now a finance professor at the Yale School of Management.

“They do want to suggest that things are better,” he said. “On the other hand, they don’t want to suggest they’re going to change policy anytime soon. So it’s tricky communication.”

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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