Price of Gold Fundamental Daily Forecast -Traders Facing Many Variables including Fed Under-/Over-Delivering

Gold futures are moving higher on Wednesday, bolstered by a weaker U.S. Dollar, even as traders buckled-in for what could be the highest single rate hike since 1994. Traders attributed the dollar’s weakness to a drop in U.S. Treasury yields.

At 14:42 GMT, August Comex gold futures are trading $1822.70, up $9.20 or +0.51%. The SPDR Gold Shares ETF (GLD) is at $169.80, up $1.23 or +0.73%.

Fed Decisions

Traders have priced in a 75-basis point rate hike from the Federal Reserve when it releases its monetary policy and interest rate decisions at 18:00 GMT. However, the near-term direction for gold is likely to be determined by the Fed’s future rate hike projections. Some say the Fed could raise rates in July another 75-basis points, followed by a September rate hike of 50-basis points.

Recession Fears

Although the markets have priced in a 99.6% chance of a three-quarters of a point rate hike, some are saying policymakers could go as high at one-full basis point. Others have countered this thought by saying that would be too much, and it could have a negative impact on the economy.

While rate hikes tend to weigh on gold prices, negative economic growth or a recession would likely have a positive effect because it would likely encourage the Fed to limit or completely stop raising rates.

Fed Could Under Deliver

Gold could also find support if the market perceives the Fed as under-delivering. This would occur if central bankers came out with a 50-basis point rate hike while the market is pricing in a 75-basis point rate hike.

React to Treasury Yields, Not the Headlines

Determining the direction of the gold market into the close on Wednesday will ultimately be the path of Treasury yields, not the headlines. There are just too many variables to track, which means too many headlines to make a sound trading decision.

Remember, traders are going to have to deal with the headline number: A 50- or 75-basis point rate hike and the Fed’s interest rate projections.

Additionally, they could raise rates 75 bps in June, 75 bps in July and 50 bps in September, or they could front load with 100 bps in June, 75 bps in July and 50 bps in September.

Traders will be glossing over and reacting to everything the Fed says in its announcements. This opens the door to a volatile two-sided trade until prices settled down. The thing to avoid is reacting to the headline number in one direction then getting caught on the wrong side of the interest rate projections for July and September.

Traders are preparing for anything from policymakers because today’s Fed announcements could end up being a huge “sell the rumor, buy the fact” situation.