Gold prices remained stable below $3,345 in early trading today, as investors around the world took a ‘wait and see’ approach ahead of the US Federal Reserve’s (Fed) monetary policy decision.
Although the precious metal has recovered slightly after falling to around $3,302 earlier this week, its movement is still trapped due to the clash between two key economic data, namely the US second-quarter Gross Domestic Product (GDP) and the Fed’s decision.
For now, traders are choosing to be cautious rather than making big moves.
The Fed is expected to keep interest rates unchanged, but the real focus is on the tone of Chairman Jerome Powell’s official statement.
For gold, which offers no interest rate return, any indication of whether a rate cut is imminent or still far away is very important.
Data to Decide: GDP and PCE Figures to Focus
The US economic stage is now set. The country's economy is forecast to grow 2.4% in the second quarter, up from a 0.5% contraction in the first quarter.
Meanwhile, core PCE (Personal Consumer Expenditure) inflation is expected to fall to 2.4%, from 3.5% previously, which is seen as a sign of support for interest rate cut expectations.
If the actual figures disappoint, the market is likely to raise expectations for a rate cut as early as September, weakening the US Dollar and supporting a rise in gold prices.
However, if the data shows strong economic performance, hopes for policy easing may fade, pushing the Dollar higher and pushing gold lower.
However, market reactions may still be slow for now, as all investors are focused on the Fed's official statement, where the tone of the speech is more meaningful than the figures themselves.
Fed Split: Internal Voices Are Growing Loud
The Federal Open Market Committee (FOMC) is widely expected to keep interest rates at 4.25%-4.5%, given subdued inflation and political pressure from President Trump who is overhauling global trade policy.
But the real focus will be on the differences in opinion among Fed members, especially if individuals like Governor Christopher Waller start voicing support for easing rates in the near future.
In our view, there is potential for a split in the FOMC vote among Fed members, signaling the possibility of a faster-than-expected policy change.
If more than two members disagree, it could be an early signal that the Fed is ready to shift course to more accommodative policy, a factor that could boost gold prices while raising questions about the Fed’s transparency and independence from political pressure.
The market currently sees a 64% chance of a 25 basis point rate cut at the September meeting. However, this number could change dramatically depending on what is announced at Powell’s press conference.
Market Outlook: Calm Before the ‘Blast’
With gold prices stuck between fundamental uncertainties and technical resistance, investors remain cautious. Market risks such as weaker US economic data, division in the Fed, and uncertainty over Trump-era trade policies could make the current investment climate very challenging.
As long as there is no clarity from the Fed, gold prices will continue to be in a waiting phase. However, this calm is not expected to last long. If the Fed gives a more dovish tone, gold prices could surge above $3,345. On the other hand, if the tone is more hawkish, the price floor around $3,300 may be broken.
However, one thing is certain, this calm is a clear sign before the ‘storm’ that will shake the market.
