Posted 21st September 2022

All Eyes on Fed With Gold Investors Hoping for Conservative Hike

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All eyes will be on the Federal Reserve when it announces its latest interest rate decision later today. Another large hike is certain, with a 75 basis point increase the likeliest outcome, but in recent days the prospect of a full percentage point hike has been gaining traction.

The aggression of the Fed, as well as other central banks including the Bank of England and more recently the European Central Bank and the Riksbank, have seen gold plunge to levels last seen more than two years ago. To put the current scenario into context, the expected outcome of a third consecutive 75 basis point hike by the Fed would be considered the conservative option when just a few months ago it would have represented one of the biggest increases in the US central bank’s history. 

Gold is now languishing comfortably below $1,700 an ounce and it is hard to see where the short-term drivers will come from to boost it significantly higher. Instead, the hope will be that the falls experienced throughout the second half of September have forced the gold price down to a level around which it can at least stabilise around with sufficient longer-term drivers such as the ongoing war in Ukraine and the growing prospect of a global recession preventing further declines.

So far, key thresholds haven’t proven to be strong supports for gold so if the Fed does surprise with a 100 basis point hike then the price could quickly plunge to a fresh low for the year with the potential for a fall below $1,600.

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