Powell’s Wild Card: Will Gold Prices Skyrocket by $15 as Fed Chief Defies Logic
Gold Prices Soar Ahead of Federal Reserve Policy Meeting
On Wednesday, September 18, the financial market is eagerly awaiting the Federal Reserve’s policy meeting announcement. As of press time, gold is trading around $2,570, with an intraday range of almost $15.
Expectations of Interest Rate Cuts Drive Gold Prices Higher
Gold prices reached a record high of $2,589 at the start of the week, fueled by expectations that the Federal Reserve will double interest rates to 0.50% at its meeting. Further cuts in interest rates by the Fed would be positive for gold, reducing the opportunity cost of holding gold and making it more attractive to investors.
Gold Prices Retreat After Retail Sales Data
Gold prices fell on Tuesday after US retail sales rose 0.1% in August and 1.0% in July, beating consensus expectations. However, the data was still better than expected, leading to a decline in gold prices.
High Probability of 50 Basis Point Rate Cut
According to CME’s FedWatch tool, the probability of a 50 basis point rate cut is 61%, while the probability of a smaller rate cut (0.25%) is 39%. This suggests that the probability of an interest rate cut of any size is 100%.
Expert Insights: Balancing Creditors’ and Debtors’ Interests
Ray Dalio, chief investment officer of Bridgewater Associates, believes that the Fed will try to balance the need for creditors to have real income with the desire to reduce debtors’ interest payments. He suggests that a 25 basis point cut may be the right move, but a 50 basis point cut could be necessary to address the mortgage situation.
Technical Analysis: Gold Pulls Back
Gold prices fell back to $2,570-2,560 after rising, but the short-term, medium-term, and long-term trends remain bullish. According to technical analysis, the trend is likely to continue, and any pullback is expected to be short-lived.
The relative strength index (RSI) indicates that gold is not overbought and still has room to rise. However, if gold closes into overbought territory, it may advise traders not to add to long positions.
If a correction occurs, firm support is at $2,550, $2,544 (0.382 Fib Tracing September rally), and $2,530 (previous range high). With prices moving further into uncharted territory, traders are likely to target the round figures, with $2,600 an obvious target for profit-taking if the rally continues.