Gold price trades directionless as Fed decision looms

• Gold price trades in a narrow range as the focus shifts to the Fed’s monetary policy decision.
• The US Dollar remains subdued as the Fed is expected to keep the interest rates unchanged.
• A steady policy announcement is likely to be followed by a hawkish outlook.

Gold price (XAU/USD) struggles to deliver a decisive move as investors remain cautious ahead of the interest rate decision by the Federal Reserve (Fed). An unchanged monetary policy along with a hawkish interest rate outlook is widely anticipated as the Core Consumer Price Index (CPI), which is generally considered when setting the interest rate framework, is consistently declining.

Worries about the interest rate outlook from the Fed deepen as US Treasury Secretary Janet Yellen said that growth has to slow to ensure price stability in a low unemployment scenario. The economic resilience of the US economy is good news, but it is also becoming a major roadblock for Fed policymakers in their quest to bring back inflation to the desired rate. Labor demand, wage growth, and consumer spending have remained strong, while woes in the manufacturing and the housing sector persist.

Daily Digest Market Movers: Gold price remains calm ahead of Federal Reserve meeting

• Gold price trades sideways as investors await the monetary policy decision from the Federal Reserve, which will be announced at 18:00 GMT.
• The Fed is expected to leave interest rates unchanged for the second time in the current tightening spell initiated in March 2022 as inflation is consistently softening.
• As per the CME Group Fedwatch Tool, traders undoubtedly see interest rates remaining steady at 5.25%-5.50% after the Federal Open Market Committee (FOMC) meeting on Wednesday. For the rest of the year, traders anticipate almost a 60% chance for the Fed to also keep monetary policy unchanged.
• Market participants will keenly watch for guidance on interest rates and the economic outlook. Investors remain mixed about whether the Fed will keep the doors open for further policy tightening or will provide cues about rate cuts.
• The Fed is expected to deliver hawkish guidance as the so-called ‘last mile’ of inflation, which is the remaining path towards the desired rate of 2%, seems the stickiest.
• Upside risks for the Fed remaining hawkish on the interest rate outlook are also propelled by the recent surge in gasoline prices.  Oil prices rallied almost 40% in the past four months, driven by production cuts from Saudi Arabia and Russia.
• Higher gasoline prices could elevate transportation costs, which might propel input costs at factory gates and their burden will likely be passed on to end consumers.
• In spite of higher interest rates by central bankers, the US economy has remained resilient while other G7 economies have suffered an economic slowdown.
• Investors see the US economy walking on a “golden path” as labor growth remains steady. This would mean a situation where inflation recedes without pushing the economy into a recession.
• A surprise discussion about rate cuts from Fed policymakers might shoot demand for US equities and weaken the appeal for the US Dollar.
• The US Dollar Index (DXY) remained calm before the Fed meeting, trading sideways slightly above 105.00.
• Yields offered on shorter-time US Treasuries have advanced more than longer-period bonds, a situation which historically has been an indicator of an upcoming recession.
• US Treasury Secretary Janet Yellen is confident about economic prospects, but warned on Tuesday that growth has to slow further to bring down inflation as the economy is consistently operating at full employment levels.
• US Housing Starts declined in August as higher mortgage rates forced home buyers to postpone purchases. Housing Starts contracted by 11.3% in August compared with the previous month. This is the sharpest decline in more than three years.
• While US homebuilding activity plunged heavily, demand for new buildings rose sharply by 6.9%.

Technical Analysis: Gold price remains directionless near $1,930

Gold price trades in a narrow range as investors remain on edge ahead of the Fed’s monetary policy. The precious metal shows signs of volatility compression but continues to defend the 50-day Exponential Moving Average (EMA). On a lower time frame, the yellow metal demonstrates evidence of a slowdown in the upside momentum. Gold price is expected to turn volatile after the monetary policy announcement by the Fed.