Today brings the much-anticipated Federal Reserve interest rate announcement, which is set to dominate market activity.
While the move itself has long since been priced in, with a 25 basis point hike broadly expected, attention will be on the statement released alongside the announcement as well as Fed Chair Jerome Powell’s comments that follow it.
Gold has found itself inextricably linked with the words and actions of the Fed and its officials with the price plummeting last year during the series of 75 basis point hikes the US central bank implemented and staging an impressive recovery over the final months of last year and into January that was driven by a change in sentiment in how soon the Fed would stop increasing rates any further.
Today’s expected 25 basis point move will be the smallest hike since the Fed started increasing rates in the second quarter of last year and will be the latest indicator that the US central bank feels its aggressive policy has yielded the result it was designed to do with inflation now on a downward trajectory. For gold investors, the key will be how many more rate hikes are likely in this current cycle with the precious metal’s lack of yield making it less attractive during times of high-interest rates compared with other interest-bearing asset classes.
Gold has already priced in the Fed’s interest rates peaking very soon so will need further confirmation that this remains likely if the price isn’t going to tumble down from its elevated position.
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