One such factor is the US dollar, which is currently trading somewhat lower, increasing gold prices before the Fed’s interest rate announcement later tonight. Retail sales will act as a lead-in to the Fed rate action, and everything above 0.2 % might bolster the already hawkish picture, therefore weakening the gold and boosting the dollar.
Money markets are already putting in a rate hike of 71 basis points, quite far removed from the Fed’s previous forward forecast of 50 basis points hikes.
The upward revision was prompted by last week’s positive U.S. inflation report, and if the Fed deviates from its own advice, skepticism in the central bank may grow, resulting in increased volatility and uncertainty for meetings taking place in the foreseeable future. The press conference following the release will be a hot topic in terms of the dot plot, estimates of GDP, and inflation.
Tremendous volatility in the US dollar and spot gold subsequently before and after the announcement can be expected. However, a 75 basis point rise is to take place, the dollar is in an advantageous position. Normally, this would be negative for gold prices, but with predictions of stagflation and an imminent recession, the safe-haven appeal of gold may come into focus, allowing it to remain fairly resilient in light of the dollar which is soaring.
Retail traders are clearly long on gold, according to IGCS, with 85% of investors keeping long positions at the time of publication.