Gold Price Forecast: XAUUSD to suffer on hints of 75 rate hikes from the Fed

Gold prices declined amid a worsening demand outlook last week. The focus turns to a two-day FOMC monetary policy meeting, starting this Tuesday. The possibility of a 75 bps rate hike in the future would weigh on the yellow metal, FXStreet’s Eren Sengezer reports.

Fed's rate outlook and balance sheet reduction plan to impact dollar valuation

“The ISM will release the US Manufacturing PMI on Monday. A weaker-than-expected PMI reading is likely to force the greenback to stay under bearish pressure and help XAU/USD push higher. In case the headline PMI surprises to the upside, the dollar might have a tough time capitalizing on it ahead of Wednesday’s all-important FOMC meeting.” 

“The Fed is widely expected to hike its policy rate by 50 basis points and unveil its plan to shrink the balance sheet. A QE reduction of less than $95 billion could be seen as a slight dovish tilt in the Fed’s policy outlook and trigger a voluminous dollar selloff. Such an action is likely to cause US Treasury bond yields to fall sharply and provide a boost to XAU/USD.” 

“In case either the policy statement or FOMC Chairman Jerome Powell outright dismisses the possibility of 75 bps rate hikes in 2022, the dollar will have more room for a downward correction. On the other hand, any mention of a 75 bps rate hike being on the table in the near future would be assessed as a confirmation of the Fed’s willingness to tighten the policy in an aggressive way and not allow gold to hold its ground.”

“In the meantime, gold’s gains are likely to remain limited regardless of the dollar’s performance in case Beijing goes into a lockdown.”