Gold hits $3,680, eyes $3,700 as Fed decision looms
- XAU/USD trades at $3,680, with 95% probability of a 25 bps Fed cut and slim 5% odds for a 50 bps move.
- Technicals point to $3,700 test; dovish Fed stance could unlock upside toward $3,750 and $3,800 targets.
- Hawkish surprise or cautious guidance may prompt profit-taking after a sharp rally to record highs.
Gold (XAU/USD) price rallies on Monday, surpassing the previous record high of $3,674 and hitting $3,685, poised to challenge the $3,700 level in the near term, as traders brace for the Federal Reserve’s (Fed) monetary policy decision.
Bullion extends rally beyond previous record with traders pricing near-certain Fed rate cut at September meeting
On Wednesday, the US central bank is expected to reduce interest rates by 25 basis points, as depicted by the CME FedWatch Tool. Odds are at 95%, and for a 50 bps is slim at 5%.
Gold Price Forecast: Technical outlook
Gold price is poised to challenge the $3,700 in the near term, though it will depend on the outcome of the Fed’s decision. A dovish cut could push prices past the abovementioned figure and clear the path towards $3,750 and $3,800. Otherwise, a hawkish Fed could lead traders to book profits and push Gold prices lower.
(This story was corrected on September 15 at 16:52 GMT to say that the Fed is expected to lower interest rates on Wednesday, not Tuesday.)
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
