Gold price prediction as market digests Fed interest rate decision

Gold price remains on a rebound as the market digests the Fed interest rate decision and FOMC statement released on Wednesday. The situation in eastern Europe may continue to offer support to the precious metal in the ensuing sessions.

Fed’s interest rate hike

As expected, the US central bank increased the rates by a quarter of a percentage point. In an attempt to prevent the economy from overheating, it forecasts a rate hike during every meeting for the remainder of the year. An environment of higher interest rates is usually a bearish driver of gold price as it increases the opportunity cost of holding the non-yielding asset.

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Nonetheless, inflationary pressures will likely offer support to the precious metal in the short term. US inflation is currently at its highest level in four decades at 7.9%.

On the one hand, the Fed’s policy rate projection is for the range between 1.75% and 2% by the end of 2022. However, it acknowledged the uncertainties that the US economy currently faces in the form of the Russia-Ukraine war and COVID-19 pandemic.

Based on both the fundamentals and technicals, gold price may have found its short-term bottom following the recent pullback. In addition to the heightened inflationary pressures, hurdles in the Russia-Ukraine talks remain a bullish driver in the precious metals’ markets.

While negotiators from both sides have indicated that talks are headed in the right direction, Russian troops have continued to bomb various regions within Ukraine. On Wednesday, the US Embassy in Kyiv stated that Russian forces had shot and killed 10 civilians who were waiting in line for bread in Chernihiv.

Gold price technical outlook

Gold price is on a rebound for the second session in a row. On Wednesday, it dropped to its lowest level in over two weeks at 1,895.34 as a knee-jerk reaction to the Fed interest rate decision. It has since bounced back above 1,900 to 1,938.24 as at 10:15 a.m GMT.

On a daily chart, it is trading above the 50-day EMA while hovering around the 25-day EMA. In the short term, I expect the precious metal to trade within a horizontal channel of between 1,890.46 and 1,950.89.

A stalemate in the ongoing Russia-Ukraine talks may boost gold price past the crucial zone of 1,950 to find resistance at around 1,971.36. On the flip side, a decline past the lower border of the aforementioned range will likely place the support at 1,876.82.