Gold price extends pullback ahead of crucial FOMC meeting: Will hawks turn to doves and support XAU/USD?

• Gold price trims 3% after peaking above $2,000 at the start of the week.
• Market full attention is on FOMC meeting, with consensus expecting a 25 bps dovish rate hike.
• Federal Reserve members showed hawkish rhetoric before blackout period, banking crisis.
• Future rate hike projections will determine if the Gold uptrend can keep going.

Gold price is quietly trading below $1,950 on Wednesday during the European session as the market pauses action ahead of a decisive Federal Open Market Committee (FOMC) interest rate decision on Wednesday. The Federal Reserve (Fed) will release its monetary policy statement, including the Summary of Economic Projections (SEP), also known as the dot plot, at 18:00 GMT.

FOMC Speech Tracker: Do hawkish remarks still carry weight after banking crisis?

The Federal Reserve decision on Wednesday is a unique one, as FOMC members face sticky inflation levels well above the target on their mandate, but they probably can’t be as aggressive (or hawkish) as they would like to be after the collapse of Silicon Valley Bank triggered an international banking crisis. Higher interest rates mean tighter credit conditions, and bank balances might suffer as a result.

Gold price reaction to the meeting will depend on whether the FOMC leans more toward respecting their mandate and attacking inflation with higher interest rates in the current and future Fed meetings, or if they show cautiousness to prevent more issues in the financial system.

We have plugged together all the speeches from Federal Reserve board members, whether they have voting attributions in 2023 or not, since their last meeting on February 1 to review the bias the FOMC board might have when they meet and decide on interest rates and the dot plot. The question is whether their opinions have changed and if hawks have become doves after the SVB bank crisis surfaced, so this tracker might have to be taken with a grain of salt this time around.

This is the FOMC speech tracker for the February-March period:

*Voting members are highlighted in bold.

From 18 speeches tracked by our editorial team, eight were deemed as hawkish pieces, eight more were considered as balanced, and only two leaned dovish. The hawkish voices came mostly from voting members, which makes the hawkish bias more profound ahead of the FOMC Meeting. It’s also remarkable that the two dovish instances came both from non-voting members, Thomas Barkin and Raphael Bostic.

This would have presented a clear hawkish outlook going into this meeting, but a more dovish stance is on the cards after the banking crisis.

Gold price technicals show bullish bias

Gold price extended its pullback on Tuesday to a loss of around 3% from the peak seen early on Monday above $2,000, finding support at $1,940. This is close to the 23.6% Fibonacci retracement level of the big rally seen between March 9 and March 17.

Gold uptrend, as clearly seen in the daily chart below, is still intact, which might allow the bright metal bulls to trigger another upswing if the FOMC releases a dovish statement, with the SEP potentially hinting at an interest rate cut before the year-end, accompanying a 25 basis point rate hike for the current meeting.

Gold price daily chart