Price of Gold Fundamental Daily Forecast – Firming on Short-Covering, Position-Squaring Ahead of Fed Announcements

Gold futures are trading higher early Wednesday after hitting a four-month low the previous session. Most of the price action is being fueled by profit-taking and short-covering ahead to today’s U.S. Federal Reserve interest rate decision and monetary policy statement.

At 0843 GMT, June Comex Gold is trading $1309.70, up $2.90 or +0.22%.

The Federal Open Market Committee (FOMC) will make its interest rate and policy announcement at 1800 GMT. Most investors are not expecting the central bank to tighten its policy. Expectations in the market for a rate hike are just 5.7 percent, according to the CME Group’s Fed Watch tool.

However, traders will be looking at the monetary policy statement for clues about the central bank’s views on inflation and the economy. The statement may also reveal the central bank’s thoughts on future rate hikes. At this time, traders are pricing in a quarter-point rate hike for June.

Gold hit its lowest level for the year while the U.S. Dollar hit its highest level. This is strong support for the notion that the correlation between the two assets is back on. For several months, gold was supported by geopolitical tensions and traders weren’t confident in the number of rate hikes by the Fed this year.

However, conditions have changed. North Korea and South Korea are talking peace, for example, while the U.S. and China are negotiating to avoid a trade war. This is forcing bullish gold traders to face the reality of rising Treasury yields and a stronger U.S. Dollar.

Forecast

Traders don’t expect the Fed to raise rates at today’s meeting, but they are betting on a rate hike in June and another later in the year. If the Fed delivers what investors expect then gold prices could rally on short-covering and profit-taking due to oversold technical conditions.

Gold could extend its losses if the Fed statement hints at a fourth rate hike this year. The Fed is likely to drop the hint if it sees evidence of inflation heating up.