Is the price of gold ready to hear what the Fed’s Powell has to say?

(Kitco News) Gold is now in a much better position to receive Federal Reserve Chairman Jerome Powell’s announcement on Wednesday. But can she handle a more hawkish message from the central bank?

After losing $ 50 last week, gold posted encouraging double-digit gains as Evergrande concerns rocked markets earlier in the week.

In addition to increased volatility in global equity markets, the OECD has raised its inflation outlook for nearly all of the Group of Seven (G7) countries for the remainder of this year and next.

“Short-term inflation risks are on the rise, especially if pent-up consumer demand is stronger than expected, or supply shortages take time to overcome,” the OECD said in a report. . “The accommodative monetary policy must be maintained, but clear direction is needed on the horizon and the extent to which any excess inflation will be tolerated.”

The OECD has said it expects US inflation to stay above 3% throughout next year. “Inflation is expected to stabilize at a level above the average rates seen before the pandemic,” the OECD said. “This is welcome after many years of below target inflation results, but it also points to potential risks.”

For the Fed, that means it needs to be extremely careful about when and how much better to cut its $ 120 billion in asset purchases per month.

The precious metal still faces a significant headwind with the Fed’s announcement on Wednesday as any hint of a hawkish weakening schedule would push prices down again.

“The strength of the US dollar, coupled with expectations of the US Fed, whose two-day meeting begins today, appear to have kept the price of gold under control,” said Daniel Briesemann, analyst at Commerzbank.

BBH Global Currency Strategy does not consider the Evergrande situation in China to have an impact on the deliberations or decisions of the Fed. “No policy changes are expected, but we do expect a hawkish stance as the official statement and minutes should continue to lay the groundwork for a reduction this year,” said Win Thin, head of BBH’s foreign exchange strategy.

The Fed is expected to officially announce the cut at its November meeting, with an estimated start in December, Thin added.

The US central bank will also release its improved set of economic projections, including the dot plot.

Most analysts are looking to get a mention of the reduction, but to keep the statement just short of an official announcement.

“We and the consensus expect no formal changes to be announced at this meeting, although we will likely get changes in the political statement suggesting that an announcement on the reduction is imminent,” said Bill Diviney, senior American economist at ABN AMRO. “Specifically, the Fed could change the part of the July policy statement tying the pace of asset purchases to progress toward its goals to something like:” the economy has made further progress toward those goals, and this is likely to justify a reduction in the pace of asset purchases in future meetings. “

The Fed’s announcement could be disruptive for the precious metal, especially if the updated dot chart has a hawkish slant, commodities strategists at TD Securities said.

“Remember that only two managers need to score their 2022 points for the median to rise… Against this background, the ‘stagflation’ narrative captures the market’s share of mind, as participants envision a period of strong inflation and slower growth, but that has not yet translated into additional interest in gold, ”the strategists said.

Investors are starting to assess a hawkish statement on Wednesday, which could hurt the rebound in gold, also noted Edward Moya, senior market analyst at OANDA. “Gold’s rebound should start to falter soon as prices face strong resistance from the $ 1,800 level,” Moya said.