Gold Price Holds Steady as Market Awaits US Events: What’s Next for Investors?

  • Gold price remains flat ahead of significant US events, including the Federal Reserve meeting.
  • Traders are cautious about investing in gold due to the market’s recent pricing out of future cuts on a 12-month basis, despite leading economic indicators suggesting otherwise.
  • Expectations for Fed tightening have decreased, with only one 25 basis point hike priced in, while three 25 basis point rate cuts are still expected by year-end.

As investors eagerly await key events unfolding today and Wednesday on the US calendar, the gold price appears to be holding steady. All eyes are currently fixed on the upcoming Federal Reserve meeting scheduled for Wednesday. Following the release of the highly anticipated Nonfarm Payrolls jobs report, short positions in gold have been covered as traders took profits. Presently, the XAU/USD is trading at R36350, maintaining a triangular pattern on the charts as indicated by technical analysis.

Market analysts at TD Securities have observed a growing acknowledgement among gold traders that we are reaching a point of “near-terminal rates,” which limits the bearish case for the precious metal. However, discretionary traders seem hesitant to invest their capital in gold due to recent market trends suggesting a reduction in future cuts over a 12-month period.

Despite this cautious approach, the analysts explain that such market sentiment stems from responses to strong lagging indicators. Leading economic indicators, on the other hand, continue to suggest that pricing for cuts should stabilize in the foreseeable future, which could bolster discretionary traders’ positioning in gold. Additionally, trend-following Commodity Trading Advisors (CTAs) have recently reduced their exposure, thereby minimizing the potential impact of an unexpected interest rate hike during the upcoming meeting.

Meanwhile, expectations for Fed tightening have declined prior to the Federal Open Market Committee’s decision on Wednesday. Analysts at Brown Brothers Harriman note that the “World Interest Rate Probability” (WIRP) currently indicates a mere 60% probability of a 25 basis point hike, which then rises to nearly 100% for the subsequent May 2-3 meeting. Drawing inspiration from the European Central Bank’s actions, the analysts argue that the Federal Reserve should follow suit and raise rates, despite ongoing banking system tensions. Presently, the market has priced in only one 25 basis point hike, while expectations for three 25 basis point rate cuts by year-end still persist. Considering the persistent high levels of inflation, it is unlikely that an easing cycle will be witnessed this year.

In addition to closely monitoring the US calendar, investors are also paying attention to the UBS deal to acquire Credit Suisse. The Federal Reserve, along with five other central banks, recently announced a coordinated effort to enhance liquidity in their existing USD swap arrangements. Although these developments may alleviate some concerns, analysts at Brown Brothers Harriman believe that First Republic’s situation remains under scrutiny. Until the matter is resolved, markets are expected to remain highly unsettled.

As South African investors stay informed about gold prices, the global market dynamics and key US events continue to shape expectations. The upcoming Federal Reserve meeting and its outcomes, along with the UBS deal and broader banking system concerns, will likely influence gold prices in the days ahead.

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