Gold price eased on its downtrend after four consecutive sessions in the red. The focus is now on the FOMC meeting minutes set for release on Wednesday. As at the time of writing, it was at $1,738.40; up by 0.03%.
Fundamentals
As is the case with other precious metals, gold price tends to move inversely to the value of the US dollar. Granted, industrial metals and the broader class of commodities also have an inverse relationship with the greenback since they are priced in terms of dollars. However, the connection between gold and the US dollar is largely founded on its use as a safe haven during geopolitical and economic uncertainties.
Notably, gold price and the other precious metals are particularly sensitive to the Fed’s monetary policy. In particular, it is usually under pressure in an environment of high interest rates.
For instance, it hit its all-time high in August 2020 at $2,075.23 as the Fed enacted its quantitative easing (QE) program. In comparison, it hit its lowest since April 2020 about two months ago at $1,614.57 amid aggressive interest rate hikes.
In the ensuing sessions, the Fed meeting minutes will be a key catalyst for gold price movements. The economic event, which is scheduled for Wednesday, will provide further cues on the Fed’s decision in its December meeting.
Investors expect the US central bank to begin tapering its pace of interest rate hikes by approving an increase of 50 basis points in its next meeting. Over the past four meetings, it has enacted hikes of 75 basis points.
Notably, recent data indicated that inflation in the US has eased. Besides, crude oil prices have been on a downtrend in recent weeks.
Gold price prediction
As seen on its daily chart, gold price has continued to trade above the 25 and 50-day EMAs. As investors focus on the FOMC meeting minutes, it will likely hover within the range of between the resistance level at 1,750.24 and the 25-day EMA at 1,714.49.
If the minutes hint at the tapering of interest rate hikes, it may attract enough buyers to push gold price further to 1,782.82. On the flip side, cues of a hawkish Fed may have the precious metal drop past the crucial level of 1,700 to the support level at 1,693.31.
