Gold ready to drop to $1600?
Gold has been unable to rebound much from its recent lows as investors remain sceptical about the Fed potentially pivoting to a more dovish stance on Wednesday – something which the equity markets evidently believe might happen, given the large rally we saw on Friday.
Before discussing the Fed further, let’s not forget that China’s equity market is slumping, and this is causing metals like copper to come under pressure as concerns over demand intensify. In the same way, the slumping Chinese equity market and yuan is not good news for gold either.
So, a potential drop in gold to a new low for the year is starting to look more likely. Will we get to $1600 before the Fed’s meeting on Wednesday?
While a fourth 75-basis point rate hike is almost certain, it is not fully priced in. The probability for a 75bps hike has eased to around 86% according to the CME Group’s FedWatch tool, falling from around 95% the week before.
Therefore, if the Fed hikes by 75bps then this will disappoint those who were looking for a smaller increase, and thus may cause a bit of a downward move in stock and gold prices. In contrast, a 50-bps hike should have the opposite impact.
The market is even more unsure about what type of a signal the Fed will provide in terms of future rate hikes. For the December 14 meeting, for example, the market is spilt between a hike of 50 and 75 basis points. So, it is all about whether the Fed will manage expectations lower for that meeting, or whether it will signal that another aggressive hike will be on the way.
Even if the Fed guides the market expectations lower, it will likely offset this by suggesting rates will remain high for longer, than if it pursued an even more hawkish strategy.
By Fawad Razaqzada on behalf of FOREX.com
Before discussing the Fed further, let’s not forget that China’s equity market is slumping, and this is causing metals like copper to come under pressure as concerns over demand intensify. In the same way, the slumping Chinese equity market and yuan is not good news for gold either.
So, a potential drop in gold to a new low for the year is starting to look more likely. Will we get to $1600 before the Fed’s meeting on Wednesday?
While a fourth 75-basis point rate hike is almost certain, it is not fully priced in. The probability for a 75bps hike has eased to around 86% according to the CME Group’s FedWatch tool, falling from around 95% the week before.
Therefore, if the Fed hikes by 75bps then this will disappoint those who were looking for a smaller increase, and thus may cause a bit of a downward move in stock and gold prices. In contrast, a 50-bps hike should have the opposite impact.
The market is even more unsure about what type of a signal the Fed will provide in terms of future rate hikes. For the December 14 meeting, for example, the market is spilt between a hike of 50 and 75 basis points. So, it is all about whether the Fed will manage expectations lower for that meeting, or whether it will signal that another aggressive hike will be on the way.
Even if the Fed guides the market expectations lower, it will likely offset this by suggesting rates will remain high for longer, than if it pursued an even more hawkish strategy.
By Fawad Razaqzada on behalf of FOREX.com
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