Gold Prices May Drop As Fed Disappoints Hopes For Dovish Pivot

Gold prices edged up but struggled to make substantive progress as expected, with traders probably leery of committing one way or another before the FOMC rate decision. Deteriorating global growth expectations have markets pining for a dovish policy shift.

The markets’ baseline forecast for 2019 world GDP growth (as tracked by Bloomberg) has dropped to the lowest in a year. Against this backdrop, investors have aggressively cut back priced-in Fed rate hike bets. The likelihood of just one increase next year is not much better than a tossup at 56 percent.

Fed Chair Jerome Powell and company may be of another mind however. With CPI inflation registering on-trend at 2.2 percent, wage growth at a nine-year high of 3.1 percent and the jobless rate at the lowest in five decades, the US central bank may well opt to press on with stimulus withdrawal.

If official forecasts broadly endorse September’s view of 2-3 interest rate hikes in 2019 while a durable majority of policymakers continues to predict the so-called “neutral” Fed Funds rate at 3 percent, the US Dollar is likely to roar higher. Such a scenario bodes decidedly ill for the anti-fiat yellow metal.


Worries about deteriorating global growth prospects have understandably weighed on cycle-sensitive crude oil prices. The WTI contract fell alongside US stocks for a third consecutive day yesterday, suffering the largest daily loss in a month.

A relatively hawkish Fed may compound selling pressure as risk aversion continues while USD gains put pressure on assets denominated in terms of the benchmark currency on global markets. The weekly set of EIA inventory flow figures may compound the down move.

Median forecasts suggest stockpiles shed 2.85 million barrels last week. An analogous estimate from API published yesterday offered a more pessimistic view however, showing a 3.45-million-barrel build. If official figures echo that result, the case for further weakness will be bolstered.

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