Gold price slips on stronger dollar ahead of Fed meeting

Gold price retreats ahead of Wednesday’s Fed policy meeting

Gold prices saw a downturn on Tuesday, influenced by a rising U.S. dollar, as the market anticipates Federal Reserve Chair Jerome Powell's insights on interest rates after the central bank's policy meeting concludes on Wednesday.

By 10:15 a.m. EDT (14:15 GMT), spot gold had decreased by 0.4% to $2,151.69 per ounce, approaching its lowest point in a week observed on Monday. U.S. gold futures also fell by 0.4%, reaching $2,154.60.

The dollar index (DXY) gained over 0.5%, reaching a two-week high and making gold more expensive for international buyers. At the time of writing on March 19, the DXY index was trading at 103.85, up over 0.4% on the day.

Ryan McKay, commodity strategist at TD Securities, commented on the dynamics to Reuters;

“[Gold is seeing] some exhaustion to the upside as the positions moved swiftly over the past week or two and now it's taking a bit of a breather as the Fed pricing comes off a bit. For now we're not expecting a rally anytime soon. But at the same time, we're not expecting a big sell off either because the physical markets remain strong and positioning is still fairly bullish”.

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Gold price gives up recent gains after CPI, PPI come in higher than expected

Gold had previously reached a historic high of $2,194.99 on March 8. However, last week saw a near 1% drop in gold prices following unexpectedly high U.S. consumer and producer price data for February, diminishing expectations for early Federal Reserve rate cuts amid ongoing inflation concerns.

Persistent inflation could lead the Fed to maintain high interest rates, adversely affecting market demand for gold, which does not yield interest. As explained to Reuters by UBS analyst Giovanni Staunovo:

"With the FOMC meeting approaching and some concern of a more hawkish FOMC statement, with the dots eventually indicating less rate cuts this year, some market participants prefer to hold a more cautious stance by reducing their (gold) holdings”.

Despite expectations for the Federal Reserve to keep interest rates unchanged at the end of its two-day monetary policy meeting on Wednesday, investors are keenly awaiting Powell's remarks and the updated rate forecasts set to be released that day.

In related developments, the Bank of Japan (BoJ) concluded its eight-year negative interest rate policy earlier today, taking long-awaited steps to normalise its monetary policy in line with that of other central banks around the world. The BoJ raised rates into positive territory, abandoned yield curve control (YCC) — a policy that effectively capped long-term interest rates around zero — and ceased buying risky assets such as exchange-traded funds (ETFs).

In the precious metals market, spot silver declined by 0.9% to $24.78 per ounce, while platinum dropped 2% to $894.90, and palladium decreased by 5% to $983.72.

Gold price forecast: Yellow metal to benefit from an unchanged “dot plot”, says Commerzbank

In a gold price forecast issued ahead of the Fed meeting, economists at Frankfurt-based Commerzbank said the yellow metal would benefit from unchanged interest rate expectations, expressed in the central bank’s “dot plot”:

“The so-called ‘dot plot’, i.e. the interest rate forecasts of the individual FOMC members, is likely to attract particular attention at this week's Fed meeting.

US data has been mixed of late. While economic data has been rather disappointing, price data has pointed to ongoing inflationary pressures. Against this backdrop, we believe that the central bankers are unlikely to change their assessment, leaving the ‘dots’ more or less unchanged. This would probably be positive for gold, as some market participants are likely to expect an upward revision of interest rate expectations following the U.S. inflation data”.