(Kitco News) - The Federal Reserve is expected to leave interest rates unchanged at next week’s monetary policy meeting. However, analysts say the gold market is looking beyond any near-term hawkishness and instead focusing on the actions of the United States’ new President.
The yellow metal is poised to end the week within striking distance of $2,800 and fresh all-time highs, extending its winning streak to four weeks. As of 12:36 pm ET, February gold futures last traded at $2,782.80 an ounce, up 0.62% on the day and more than 1.2% higher for the week.
The rally follows remarks from President Trump, who addressed global business leaders and politicians at the Annual World Economic Forum in Davos, Switzerland, via video. In his comments, he called for global central banks to lower interest rates.
“I’ll demand that interest rates drop immediately. And likewise, they should be dropping all over the world," he said.
Economists note that Trump’s comments are at odds with current economic conditions, as a relatively robust economy continues to fuel stubborn inflation. In recent weeks, the Federal Reserve has been warning consumers about the growing upside risks to inflation as it aims to shorten its current easing cycle.
Ahead of next week’s monetary policy meeting, markets expect the Federal Reserve to hold interest rates steady, with only one rate cut priced in for this year.
Naeem Aslam, Chief Investment Officer at Zaye Capital Markets, said he doesn’t expect the Federal Reserve’s hawkish stance to persist.
“Trump has made it clear that he wants to lower rates, which means there could be a conflict between Trump and the Fed,” he said. “This is what traders are paying attention to, and [gold] prices are likely to remain elevated.”
Ole Hansen, Head of Commodity Strategy at Saxo Bank, said the conflicting outlook between Trump and the Federal Reserve is creating uncertainty, with gold benefiting as a safe-haven asset.
Hansen added that with new bullish momentum in gold, $2,800 may only be the beginning.
“I do not see any risks of overheating as long as this uncertainty persists, and a breakout will likely attract fresh momentum buying,” he said.
Analysts also point out that Trump’s comments underscore the ideal environment for gold. Not only does he want lower interest rates, but he has also advocated for tax cuts, which could boost the economy and potentially drive inflation higher.
In his first days in office, Trump has also promoted trade tariffs, though he has delayed their implementation. Many analysts believe this will further contribute to rising inflation.
“We don’t think inflation is going away that easily, especially with these pro-growth policies,” said Aslam.
Trump’s monetary policy comments, along with his indecision on tariffs against China, have also led to significant weakness in the U.S. dollar. The U.S. Dollar Index fell below initial support at 108 points. The USD is down nearly 2% against a basket of currencies and is currently trading at a five-week low of 107.46.
Although gold is benefiting from a weaker U.S. dollar, analysts caution that market volatility will remain high as Jerome Powell continues to lead the Federal Reserve with a cautious approach.
Lukman Otunuga, Manager of Market Analysis at FXTM, said the inflation threat will likely compel the Federal Reserve to maintain its hawkish stance for the time being.
“Fears over rising inflation in the face of aggressive tariffs could cap gold’s upside gains—especially if this leads to slower Fed rate cuts. Looking at the charts, prices are bullish, with the next key psychological level at $2,800. In the week ahead, the Fed’s decision could shape gold’s outlook for the coming weeks,” he said.
At the same time, the U.S. dollar could benefit from interest rate differentials. However, the Federal Reserve meeting is not the only significant even next weekt. The European Central Bank (ECB) is also scheduled to announce their interest rate decision on Thursday, with markets pricing in a rate cut.
“With data largely coming in line or softer than the ECB’s December projections, this meeting should result in a straightforward 25-basis-point cut,” said currency analysts at TD Securities. “Short-term market dynamics reflect stretched positioning and valuations, which we think will offer good entry levels to re-engage with fresh USD longs.”
The Bank of Canada will also meet next week to discuss its interest rate policy.
Economic data to watch next week:
Monday: U.S. new home sales
Tuesday: Durable goods orders, U.S. consumer confidence
Wednesday: Bank of Canada monetary policy decision: Federal Reserve monetary policy decision
Thursday: ECB monetary policy decision, U.S. Q4 GDP, U.S. weekly jobless claims, U.S. Pending Home Sales
Friday: U.S. PCE Index, personal income and spending
