Fed Expected to Hold Rates, But Powell’s Speech to Be Key
The Federal Reserve (Fed) is expected to keep interest rates unchanged at its March meeting, but investors’ attention will be focused on the Statement of Economic Projections (SEP), particularly the Dot Plot, as well as Fed Chairman Jerome Powell’s speech.
Both of these elements will be key indicators of the direction of monetary policy going forward.
If the Fed signals a longer delay in rate cuts due to inflationary pressures from Trump’s protectionist trade policies, gold could see a significant price correction.
Meanwhile, the US dollar (USD) could strengthen if the Fed’s tone is more hawkish.
The market has currently priced in at least two rate cuts this year, but if the Fed delivers a lower-than-expected cut, gold prices could face additional selling pressure.
On the other hand, if Powell acknowledges the risk of a recession is increasing or maintains the prospect of a rate cut in 2025, the decision would be seen as a dovish hold, pushing the USD and US Treasury yields lower, pushing gold prices to new highs.
Gold Hits Record High Ahead of Fed Decision
Gold (XAU/USD) hit an all-time high of $3,039 in Asian trading on Wednesday, but failed to maintain the upward momentum ahead of the Fed's policy announcement.
The US central bank is expected to keep interest rates at 4.25%-4.50%, with investors watching Powell's press conference for signals on the direction of a rate cut as a key factor that will influence the movement of the US dollar and gold.
Some investors have started to adjust positions ahead of the Fed decision, allowing the USD to recover slightly from its lowest level since October, thus limiting gold's gains for the time being.
However, geopolitical tensions and trade uncertainty, especially Trump's aggressive moves in trade policy, remain supportive factors for gold as a safe haven.
In other developments, tensions in the Middle East have escalated as Israeli airstrikes on Gaza reportedly killed more than 400 people on Tuesday.
Meanwhile, Ukrainian President Volodymyr Zelensky remained skeptical of Russia's proposed limited ceasefire, despite US President Donald Trump and Vladimir Putin reportedly reaching a preliminary agreement in a phone call.
Market Outlook: Traders Need to Be Cautious
With gold currently overbought, profit-taking is expected, but the long-term uptrend remains intact as economic and geopolitical uncertainties continue to dampen risk appetite.
Whether the Fed will further strengthen gold's gains or trigger a price correction will all depend on Powell's tone and updated interest rate projections.
Traders should be prepared for any surprises as any deviation from Fed policy expectations could trigger large moves in the gold market, the US dollar, and Treasury yields.
