Gold prices are experiencing a slight dip in the international market, with COMEX gold trading below $2605 after reaching a record high of $2,617.35 just yesterday. The spot price of gold has also slipped below $2580, down $12 from its peak. Meanwhile, in the Indian market, gold on MCX has dropped below ₹73,500. The movement in the gold market is now closely tied to the upcoming US Federal Reserve’s (Fed) interest rate decision, which has left investors cautious.
All Eyes on the US Fed Interest Rate Decision
The two-day meeting of the US Fed begins today, with the market eagerly awaiting its decision on interest rates, which will be announced tomorrow. A large chunk of the market, around 65%, is expecting a 0.50% rate cut, while 35% believe the Fed will opt for a 0.25% cut. Top financial institutions like Goldman Sachs, Oxford, and Oppenheimer AMC predict a 0.25% rate cut.
The Fed’s interest rate decision is crucial for the global gold market as it will influence investor sentiment and market movement in the coming months. Lower interest rates typically weaken the dollar and drive demand for gold, seen as a haven during economic uncertainty.
Is a One-Sided Rally in Gold Unlikely?
According to Chirag Sheth, Principal Consultant at Metals Focus, a one-sided rally in gold is unlikely in the short term. He suggests that gold prices could rise by $100-150, depending on the Fed’s decision. However, a significant spike will only be possible if the rate cuts are larger than expected, which could push gold above $2600-$2650.
Even with rising gold prices, demand for gold in India might remain stable due to the ongoing wedding season. Traditionally, gold sees a consistent demand during this time, but higher prices may affect daily wear purchases. Many buyers prefer waiting for price stability before making large investments.
What Happens If the Fed Cuts Rates?
If the Fed cuts rates by 0.25% or 0.50%, we may see an initial rise in gold prices. However, market experts expect a possible correction after this initial surge, as the market digests the Fed’s commentary and future outlook on interest rates. Profit booking could follow, leading to some volatility in the gold market.
With the Fed likely to implement further rate cuts over the next few meetings, traders and investors will closely monitor how these moves impact both gold and silver prices in the coming six months.
