Gold could rebound despite hawkish Fed outlook, analyst says

Gold is on hold ahead of the Federal Reserve’s rate decision, and its next move will hinge on whether policymakers signal a hawkish stance, according to Rick Kanda, managing director at The Gold Bullion Company.

With markets expecting rates to remain unchanged, investors will look for clues about the possibility of a December hike.

“Focus should be turned to any mention of what the economic outlook looks like for the remainder of the year,” Kanda said in a Wednesday note.

“If discussion at today’s meeting signals that interest rates could rise again in December, pressure could be put on gold prices, whereas a more dovish outlook could support prices. This is because higher interest rates generally make interest-bearing assets more attractive compared with precious metals, which do not generate an income,” he explained.

Despite the potential for short-term weakness, the analyst expects gold prices to recover over the longer term, even if the Fed maintains a hawkish stance and the dollar strengthens.

“Gold’s outlook also depends heavily on geopolitical uncertainty, central bank demand and investor confidence. Continued demand for gold as a way of diversifying portfolios and generally protecting against uncertainty will continue to help prices over the long term,” he said.

Markets overwhelmingly expect the central bank to continue raising interest rates at its December meeting, according to CME FedWatch data.

Interest rate futures indicate an 83.6% probability of a hike, with a 25-basis-point increase to 4%-4.25% assigning a 77.7% chance. The likelihood of a pause is 16.4%, while traders are not currently pricing in a rate cut.