The Federal Open Market Committee (FOMC) includes 12 key members: seven from the Board of Governors of the Federal Reserve System, the president of the Federal Reserve Bank of New York, and four of 11 Reserve Bank presidents, who operate on one-year terms on a rotating basis. The FOMC holds regular meetings to discuss topics such as interest rate hikes, which can impact recession fears, market performances, safety bets, and much more. Today’s FOMC meeting has many analysts anticipating unsettling announcements that will likely boost gold prices even higher as the safe-haven investment of choice.
Gold prices have remained modestly up in recent days, weeks, and months following past Federal Reserve announcements. Since yesterday, gold prices have skyrocketed by $46 in just hours from $1,989 per ounce to $2,035 per ounce in anticipation.
Conversely, global stock markets have shown mixed results. U.S. Treasury Secretary Janet Yellen warned about the government being in default over payments by June 1 if the debt limit doesn’t go up. Reports on President Biden hint at a potential meeting with congressional leaders at the White House to discuss.
All these factors combined have created a high level of investor hesitation, giving gold prices yet another boost. As traders anxiously wait for remarks from the FOMC meeting, one thing remains clear: gold is the life preserve investors can cling to in rough seas.
Most expect the FOMC to raise U.S. interest rates by 0.25%, another quarter hike like last time. The modest approach seems fair considering the effects of the more aggressive hikes earlier this year, partially causing SVB Financial to collapse.
Tomorrow, the European central bank will also meet to discuss interest rate hikes. Analysts predict a 25-basis-point hike from the European Central Bank as well.
In other announcements, the U.S. Labor Department will release its latest employment situation report this Friday, which will likely stir up further market impacts, as it always does. Corporate earnings reports have poured out throughout this week, depicting new information, including Apple’s figures.
“Markets seem convinced the Federal Reserve will deliver one more quarter-point hike Wednesday before a lengthy pause. But investors buying into that school of thought should heed a cautionary tale from Down Under. Australia’s central bank shocked investors with a 25 basis-points hike Tuesday, also warning that more rises may be needed—sticky inflation was to blame,” a report from Barron’s explains.
According to the Barron’s report, analysts thought the Australian central bank wouldn’t continue raising interest rates, yet the news on Tuesday shocked many. After a quarter-point hike in April, analysts thought Australia was done raising rates, though evidently not.
Because of this news, a few believe we may be in for a shock with the FOMC meeting. While most expect a quarter-point hike, it could be more significant, or it could come with additional surprising news, like hints at future aggressive strategies for 2023’s remaining quarters, despite previous remarks. Attempting to estimate the Federal Reserve’s actions can be a complete guessing game at times.
The Euro consumer price index increased by 7%, anticipating further announcements. In March, the figure was up 6.9% year-on-year. April’s reading falls in line with market expectations.
The U.S. dollar index remains steady, while Nymex crude oil prices stay low, trading at around $75.50 a barrel as we approach the beginning of the export cuts.
Gold futures bulls maintain a solid technical near-term advantage, with the next upside price objective being resistance at a high of $2,063.40. This week’s high has already hit $2,035 per ounce. Following the actual announcement, we may see a temporary dip or a sudden rise, depending on how the report plays out.
We can likely expect to see a target change from the Fed as well, plus forward-thinking statements regarding plans for the remainder of 2023. The beginning of the year started with aggressive actions from the Fed, which backfired for most of the economy, though it boded well for gold. Many expect more relaxed efforts for the following quarters, though, with the climbing inflation levels, the Fed could surprise analysts.
Interest rate hikes can cause temporary dips in gold prices, but soaring inflation helps gold perform its best. If we see another interest rate hike, we may see a performance dip, though only temporarily. Investors seeking a time to strike while prices are low may gain that opportunity soon; however, it all depends on how the meeting plays out.
As always, investors should consult their financial advisors before making any portfolio decisions.