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James Hyerczyk
Comex Gold

Gold futures are edging lower on Wednesday shortly before the regular session opening and well ahead of the release of the U.S. Federal Reserve interest rate and monetary policy announcements at 18:00 GMT. The market has been trading inside a relatively tight range for about two weeks, which tends to indicate investor indecision and impending volatility.

At 10:40 GMT, December Comex gold futures are trading $1508.80, down $4.50 or -0.30%.

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The recent easing of trade tensions between the United States and China deflated the gold market, changing the trend to down for the first time in months. The resilient U.S. economy also contributed to the gold market’s weakness. Recent government data showed that big money managers were reducing exposure in the precious metal.

In other news, safe-haven appeal for gold took a hit on Tuesday after Saudi Arabia said full production would be restored by month’s end.

Daily Forecast

Today’s Fed decision could produce a wicked two-sided trade because there is a little uncertainty ahead of the announcements. The Fed is widely expected to cut its benchmark interest rate 25-basis points. This news has been priced into the financial markets for weeks. The Fed’s monetary policy statement and interest rate forecasts are uncertain however.

Traders are being cautious because they don’t know if the Fed is going to signal future rate cuts with conviction. Traders have priced in four rate cuts this year with the next two coming in October or December. Given the improving inflation picture, solid jobs market, and the easing of trade tensions between the United States and China, the Fed may hint that the September rate cut is the last of the year or it may suggest there will only be one more.

No one is certain which Jerome Powell will show up either. Will Powell continue to claim we’re in a “mid-cycle” correction or will he say the economy needs a cut?

“He’ll underwhelm everyone and not overwhelm anyone,” said Diane Swonk, chief economist at Grant Thornton. She expects a cut of 25 basis points, taking the fed funds target rate range to 1.75 to 2.0%, following the last quarter point cut on July 31.

“He won’t promise anything more. He’ll keep his cards close to his chest. He’ll be an artful dodger again,” said Swonk.

Look for heightened volatility with the release of the Fed announcements. Firstly, there will be a reaction to the interest rate decision. Although a rate cut is expected, there are still enough traders on the sidelines to produce a wicked reaction.

Secondly, look for volatility after the Fed reveals its forecasts on the “dot plot” charts. The markets are currently indicating two more rate cuts, but economists said it’s unlikely the Fed forecast will include more than one more rate cut in its outlook for this year.

The trade could be extremely choppy because the Fed’s decisions will generate volatile responses. A dovish Fed could rally stocks and weaken the U.S. Dollar. A hawkish Fed could drive stocks lower while driving up the U.S. Dollar. Gold can easily flip in both directions.

The key is to stay out of the market during Fed time and allow the markets to settle before taking a side in the gold market.

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