Gold Price Forecast: XAU/USD lifted by Putin, Fed to knock it down – TDS

Gold capitalized on safe-haven flows and climbed above $1,670 as investors seek refuge as Russian President Vladimir Putin announces military mobilization. But eyes are on the Federal Reserve. A hawkish hike is set to weigh on the yellow metal, strategists at TD Securities report.

FOMC to provide more hawkish signals

“Gold is catching a safe-haven bid as Russia has escalated the war in Ukraine with Putin declaring a partial mobilization in Russia and threatening use of nuclear weapons. Nonetheless, it is Fed day, where aggressive Fed expectations are being priced in.”

“The persistence of inflation continues to support an aggressive effort by the Fed, and we expect the FOMC to deliver its third consecutive 75 bps rate hike, bringing the policy stance decidedly above its estimate of the longer-run neutral level. We also look for the Committee to provide more hawkish signals through the update of its economic projections and for Chair Powell to build on his Jackson Hole message.” 

“While prices are certainly weak, precious metals' price action could still have further to fall as the restrictive rates regime is set to last for longer. Indeed, gold and silver prices have tended to display a systematic underperformance when markets expect the real level of the Fed funds rate to rise above the neutral rate, as estimated by Laubach-Williams.”

See – Fed Preview: Forecasts from 16 major banks, fast pace hiking cycle continues