Gold prices are poised for significant movement this week as investors await the U.S. Federal Reserve’s announcement on its monetary policy, scheduled for midnight on September 17. Recent market trends indicate a dual climate of inflation concerns and political instability, particularly regarding the Fed’s independence, which have collectively stoked demand for gold as a safe haven asset.
Gold has managed to achieve record levels, approaching $3,700 per ounce this week, propelled by a confluence of factors. In the United States, mixed inflation data, a cooling labor market, and declining consumer sentiment have led to sustained expectations for a possible interest rate cut by the Fed. Meanwhile, Europe grapples with political instability, particularly in France, as the European Central Bank maintains steady interest rates. In Asia, China’s economy faces deflationary pressures, and Japan is preparing for snap elections.
This backdrop has resulted in a favorable environment for gold. Global equity markets ended last week on a positive note, but U.S. Treasury yields and the U.S. dollar weakened, further bolstering gold’s appeal. Meanwhile, gold exchange-traded fund (ETF) investors have continued to purchase aggressively for the third consecutive month, with net holdings showing a noteworthy increase, driven largely by Western funds. Year-to-date inflows of 472.7 tonnes contrast sharply with only 6.8 tonnes of outflows in 2024. In India, gold ETFs recorded their largest inflows in August since January, totaling ₹2,190 crore.
Central banks around the globe have now accumulated more gold than U.S. Treasuries for the first time in nearly three decades, signifying a major shift in asset preferences amongst these institutions. Gold has ascended past the euro to become the second most significant reserve asset following the U.S. dollar. Adjusted for inflation over the past 40 years, the spot price of gold has exceeded its inflation-adjusted peak of $850 set in January 1980, translating to approximately $3,590 per ounce.
Looking ahead, experts highlight the importance of the forthcoming Federal Reserve meeting. A potential interest rate cut of 25 basis points is widely anticipated, with some analysts even speculating about a more aggressive 50 basis point reduction. The broader expectation includes the possibility of three rate cuts by the end of the year. However, the key aspect will be the summary of economic projections and forecasts concerning interest rate cuts that the Fed will release during the meeting.
In this context, while a hawkish tone could lead to profit-taking and dampen gold prices, the likelihood of a substantial correction appears limited given the signs of weakening in the U.S. labor market. Significant support for gold lies in the $3,620 to $3,570 range, with current market prices hovering around $3,685. On the upside, volatility is expected post-Fed announcement, with resistance levels projected between $3,720 and $3,750 per ounce. For Indian investors, this translates to potential prices between ₹1,12,000 and ₹1,12,500 per 10 grams on the MCX futures contract.
As gold remains a focal point for both investors and central banks, the forthcoming decisions from the U.S. Federal Reserve could significantly shape the global economic landscape in the coming weeks.
