Gold price holds up despite falling market rates

(Kitco News) – Gold prices remain above the critical support level of $ 1,500 an ounce, but sales pressure is starting to weigh on the precious metal, while the chances of lowering the gold prices Federal Reserve decreases.

According to FedWatch's CME tool, as the US Federal Reserve begins its two-day monetary policy meeting, the markets are banking on a probability of rate cuts below 50%. Last week, the markets were expecting a rate hike of almost 100%. Traditionally, the Fed did not adjust its interest rates when markets had a probability of movement of less than 50%.

There is growing concern that the price of gold may fall below $ 1,500 an ounce if the US central bank does not result in a rate cut on Wednesday. The latest gold futures in December traded at $ 1,514.20 an ounce, up 0.22% on the day.

"A rate cut would give gold a boost, because the opportunity cost of holding a non-performing asset will decrease. Under these conditions, gold could target a target of $ 1,550, "said Tuesday Fiona Cincotta, Senior Market Analyst at City Index. "If the Fed kept pressure on rates and risked the wrath of President Trump, the dollar could push higher and gold back to the $ 1475 level."

Despite the increasing risks to the price of gold, some analysts have noted that the precious metals market has held up well, even in the face of changing expectations.

"It can be argued that geopolitical uncertainties have stabilized gold above the $ 1,500 psychological barrier, encouraging a constructive landscape from a fundamental and technical point of view," said Bill Baruch, president of Blue Line Futures.

Daniel Pavilonis, Senior Commodity Broker at RJO Futures, said that while gold is looking for a catalyst, a rate cut is not the only potential spark in the market.

"I think the price of gold needs to increase further about what the Fed will say than what it does," he said. "I think that a strong signal that the central bank will continue to support economic growth will help the price of gold to rise further."

So far, the Federal Reserve has been reluctant to adopt a decidedly dovish stance on US monetary policy. In his latest comments before the blackout period imposed by the central bank, Fed Chairman Jerome Powell was rather optimistic about the health of the US economy.
"The labor market continues to tighten at the margins and the consumer is doing well, there will be no recession, but we are watching the risk," he said at an event in London. Zurich, Switzerland.

In July, following the first rate cut in a decade, Powell called the mid-cycle adjustment move and rejected the idea that the central bank is entering a new round of easing.

Pavilonis added that the Fed could not adopt a too harsh tone on Wednesday as this could result in a selloff of shares, which would in turn be bullish for gold.

"Metals are struggling but the market still looks solid," he said. "I love metals and I think we are able to move forward because many uncertainties could weigh on overvalued stock markets."