How Gold Prices May React to the Upcoming Fed Decision

A recent shift in sentiment indicates that the Federal Open Market Committee (FOMC) may opt for a 50 basis point rate cut this week, which could be beneficial for the markets in the short term, according to analysts at HSBC. Despite this potential shift, expectations for the overall rate cuts this year remain consistent, with the bank’s economists still forecasting a 25 basis point reduction.

In addition to deciding on rates, the FOMC is scheduled to release its quarterly projections regarding real GDP growth, unemployment, inflation, and policy rates. HSBC anticipates only minor adjustments to the median projections for GDP growth and inflation, although unemployment forecasts might see slight changes.

The bank expects the FOMC to lower its median projection for the federal funds target range at the end of 2024 to between 4.50% and 4.75%, down from the previous range of 5.00% to 5.25%. This is in line with forecasts for 25 basis point cuts in September, November, and December. For 2025, HSBC projects the federal funds target range to decrease to between 3.75% and 4.00%, reflecting an anticipated total of 75 basis points in further cuts during the first three quarters of next year.

Should the FOMC proceed with a 25 basis point cut on Wednesday, it could positively impact the markets, particularly as larger rate cuts are already largely priced in, alongside indications of significant short positioning on the U.S. dollar. Analysts noted that this scenario could put downward pressure on gold.

The upward momentum for gold is apparent, yet technical indicators like the Relative Strength Index (RSI) suggest the market may be becoming “overbought,” making additional gains for gold challenging.

While the FOMC’s decision on Wednesday is the main focus for the markets, various economic data releases throughout the week may also affect gold, silver, and Platinum Group Metals (PGMs). Key data to monitor includes U.S. retail sales, industrial production, housing starts, jobless claims, and the leading index, along with consumer and producer price indices from the UK, the Bank of England’s decisions, Japan’s CPI, and UK retail sales figures.