1) First response, rate decision:
If it’s a surprise 100 bps hike, gold would instantly tumble. = BIG FALL 25 to 40point
If they go for 75 bps as widely expected, gold would edge up a bit. VOLATILE UP/DOWN 15point
2) Second and more important response:
projections for future rates. It gets more complicated for gold.
2A) If they forecast an interest rate of 4.5% at the end of 2023, it would send gold down a bit. Markets expect 4.00-4.25%. Mildly hawkish is good for 10-year yields, not-so-great for gold.
2B) If they signal around what markets expect, it would be a good for gold – dovish. We could see a relief rally in stocks.
2C) If they signal around 5% in 2023, it would be extremely hawkish, but significantly lower rates in 2024 and 2025, it would signal lower yields down the line – and good for gold.
2D) If they signal above 4.5% in 2023 and relatively high rates in 2024 and 2025 – high rates for longer – it would push yields higher and gold down.
Complicated, and hard to trade.
3) The third response depends on Powell.
3A) If he maintains the hawkish tone, saying a recession is needed to bring inflation down and that’s what he’ll do, long-term yields would fall and gold would rise.
3B) If Powell says that rising unemployment would cause the Fed to reconsider raising rates to crush inflation, yields would rise and gold would fall.
Assets are set to move in a choppy and volatile manner. It is a complicated event and requires experience. It also requires low leverage or just skipping it. In any case, always use a stop loss.
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