Gold price outlook with November Fed meeting in focus

By: Faith Maina
Faith Maina
Faith strives to break down complex developments so investors can make better informed decisions. When Faith is not immersed… read more.
on Oct 27, 2021
  • Gold price has dropped below $1,800 as US dollar holds steady above the crucial support zone of $93.50.
  • Investors are keen on the FOMC meeting in the coming week amid heightened inflation concerns.
  • Gold's downward price movements may be limited due to its status as a hedge against inflation and safe haven.

Gold price is still below $1,800 after dropping below this crucial level in the previous session. Investors’ focus is on Fed’s meeting in the coming week.

November’s Fed meeting

In the ensuing sessions, gold price will likely record subtle movements as investors avoid huge bets ahead of the FOMC meeting scheduled for the first week of November. Fed officials are set to taper the $120 billion monthly asset purchases as inflationary pressures persist. November’s meeting will be the beginning of a path to end the bond-buying program by mid- next year.

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Since the beginning of the year, the US central bank has downplayed concerns of the economy overheating by indicating that the rise in prices would be temporary. However, the officials appear more concerned about the persistent rise in inflation.

During a virtual conference held in the past week, the Fed Chair, Jerome Powell acknowledged that supply constraints have worsened. As a result, there are “more-persistent bottlenecks” that are pointing to higher inflation. Subsequently, Powell noted that the Fed needs to be flexible in coming months in order to position its policy to suit the various possible scenarios.

Notably, investors are evaluating the prospects of interest rate hikes. Based on the CME Group-tracked futures market prices, the likelihood of at least two rate hikes by the end of 2022 surged to 75% in the past week. The figure is a considerable rise from 20% after September’s FOMC meeting.

Ahead of November’s Fed interest rate decision, $1,800 will remain a crucial level for gold price. Typically, precious metals have an inverse correlation with the value of the US dollar. The dollar index has held steady above the major resistance-turn-support zone of $93.50 since the beginning of October. The index tracks the value of the greenback against a basket of six currencies.

With a steady dollar, the precious metal will likely have its gains curbed at October’s high of $1,814.13. Besides, eased stimulus and rise in interest rates is bound to boost Treasury yields. This would further exert pressure on the non-yielding bullion.

However, gold price downward movements may be limited. With the ongoing economic risks, its safe-haven appeal and status as a hedge against inflation will probably boost it above September’s low of $1,720.      

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