focus is on Fed interest rate decision and recession concerns

Gold price has bounced off Tuesday’s low of 1,850.17 following the easing of Treasury yields and the US dollar. Nonetheless, it remains under pressure ahead of the highly anticipated Fed interest rate decision and subsequent statement from the Fed Chair. As the same time, concerns over a recession persist.

Price drivers

All eyes are on the Fed interest rate decision scheduled for release later in Wednesday’s session. As the US central bank strives to ease the inflation that is currently at a four-decade high, an interest rate hike of 50 basis points appears to be already baked in. Interestingly, the markets just began to think about the figure after the March meeting when the Fed increased rates by 25 basis points.   

Are you looking for fast-news, hot-tips and market analysis?

Sign-up for the Invezz newsletter, today.

Amid the prospects of aggressive policy tightening, investors will be keen on Jerome Powell’s statement for cues on the likelihood of a 75 basis points hike in coming months.Granted, St. Louis Fed President is of the opinion that such an aggressive hike is likely in the course of the year. However, he was quick to add that the level was not his base case.

An environment of higher interest rates is set to further strengthen the US dollar while weighing on gold price. As at the time of writing, the dollar index was at $103.36. At that level, it is less than a dollar shy of the over 5-year high of $103.95 it hit about a week ago.

Apart from the strong US dollar, rising Treasury yields have pushed gold price below the crucial support-turn-resistance zone of $1,900. As at 11:50, the benchmark 10-year US bond yields were at 2.95%, having eased from its intraday high of 3.00%.

While the easing of the US dollar and yields has boosted gold price in Wednesday’s session, it will likely erase the gains as a kneejerk reaction to the Fed interest rate decision. Even so, the heightened concerns of a recession will likely offer support to the precious metal in the short term. According to Randal Quarles, the bank’s former Vice Chair for Supervision, a recession is likely as the Fed strives to ease inflation and bring back the labor market to an equilibrium.  

Gold price forecast

With the fundamentals in mind, the range between 1,880.75 and 1,850.17 is worth looking out for in the immediate term. As a kneejerk reaction to the Fed interest rate decision, the bears will likely push it past the lower border to find support at 1,833.83 before bouncing back to the aforementioned range. In the ensuing sessions, concerns over a recession will likely boost it past the resistance level fo 1,880 as the bulls seek to retest the critical level of 1,900.