(Kitco News) - The gold market remains stuck in neutral territory as investors wait for the Federal Reserve to make its latest monetary policy decision this afternoon.
August gold futures last traded at $1,717 an ounce, roughly flat on the day. At the same time, September silver futures last traded at $18.745 an ounce, up more than 1% on the day.
The price action in both gold and silver has been relatively quiet this week as the market tries to determine how aggressive the U.S. central bank will be after the summer. After some back and forth, a 75-basis point hike is all but guaranteed. According to the CME FedWatch Tool, markets see a 26% chance of a 100-basis point move.
However, many economists and market analysts have said that markets are now looking beyond the July meeting and are anxious for any new forward guidance on interest rates, especially as recession fears continue to grow.
Craig Erlam, senior European market analyst at OANDA, said in a note to clients Wednesday that markets are already pricing in a sharp U-turn on interest rates in 2023.
"The Fed must walk a fine line as any validation of that will undermine its efforts to tighten and get a grip on inflation. Attention will be on its guidance over the coming months and how hawkish it will continue to be," he said in the note.
"It's hard to say with any confidence right now which message investors would prefer as lower yields have tended to lift sentiment in equity markets but fewer rate hikes could bring inflation risks or indicate a weaker economy. Neither are ideal for equity markets," he added. "The safe play may be 75 basis points now and the option for a repeat in September, while highlighting the data dependency of any decision."
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Han Tan, Chief Market Analyst, at Exinity, said that gold prices could struggle as the market continues to price in another 1% rise in interest rates through the end of the year.
"If Chair Powell signals today that policymakers are sticking with their "pedal to the metal" approach in quelling multi-decade high inflation, readying even more jumbo-sized hikes in the pipeline, that might send the U.S. dollar into another rampage across the F.X. universe, while shoving spot gold into the sub-$1700 domain. That would also potentially result in more carnage for risk assets," he said.
The most significant factor for gold current remains the U.S. dollar, which is also consolidating ahead of the Federal Reserve's monetary policy decision. However, some currency analysts expect the Fed's aggressive stance on interest rates will support the greenback as it trades just down from last week's 20-year highs.
"We are not yet ready to change our strong dollar call, especially if the Fed delivers a hawkish message as we expect," said currency analysts at Brown Brothers Harriman. "When all is said and done, we believe the U.S. economy remains the most resilient. However, we expect a period of consolidation ahead for the dollar until the U.S. economic outlook becomes clearer."
Although gold prices are holding support above $1,700 an ounce, market analysts at City Index said that $1,680 is another important support level to watch.
