Price of Gold Fundamental Daily Forecast – Traders Bracing for Heightened Volatility Ahead of Fed Decisions

Gold futures are edging lower on Tuesday in a lackluster trade as most of the bigger players move to the sidelines ahead of the start of a two-day policy meeting by the U.S. Federal Reserve.

Traders are keeping their powder dry because Wednesday’s Fed announcements. On one hand, you have the Federal Funds futures market pricing in as many as three interest rate hikes in 2022. Goldman Sachs sees two rate hikes and others see the Fed as announcing the start of tapering but not giving traders any specific timing around a rate hike.

At 13:17 GMT, December Comex gold futures are trading $1792.50, down $3.30 or -0.18%.

Fed Doesn’t Want to Shock the Markets

I think the Fed will announce tapering, but will take a wait and see approach toward the timing of its first rate hike and subsequent hikes. In doing so, policymakers will attempt to avoid shocking the market by suddenly changing their tune on inflation from “transitory” to a major problem that needs to be fixed by aggressively raising interest rates multiple time within a year.

Furthermore, I don’t think the Fed wants to stifle a zig-zagging economic recovery or risk slowing down the labor market trend.

CME Group’s FedWatch Expectations

The Federal Reserve on Wednesday is expected to approve plans to scale back its $120 billion monthly bond-buying program put in place to help the economy during the coronavirus pandemic, while investors will also be focused on commentary about interest rates and how sustained the recent surge in inflation is.

Investors on Monday continued to increase their expectations that high and persistent inflation would force the Fed to raise interest rates sooner and faster than policymakers have projected. Contracts in Federal Funds futures now imply three quarter-point rate increases next year, versus two as of late last week, according to data from the CME Group’s FedWatch.

Goldman Sees a Hawkish Fed

Goldman Sachs has brought forward its forecast by a year to July 2022 for the first post-pandemic U.S. interest rate hike, as the investment bank expects inflation to remain elevated.

“The main reason for the change in our liftoff call is that we now expect core PCE inflation to remain above 3% – and core CPI inflation above 4% – when the taper concludes,” Goldman’s chief economist, Jan Hatzius, wrote in a client note.

Goldman Sachs also expects a second interest rate hike in November 2022 and two rate increases each year after that.

Short-Term Outlook

Start preparing for heightened volatility ahead of the Wednesday’s Fed announcements. A hawkish Fed could drive prices toward $1750.00. A dovish Fed could drive the market back above $1800.00.

Longer-term investors should use $1795.00 as their pivot.