Gold Prices Surge Ahead of FOMC Meeting and Rate Decision Today

By: Miguel A. Rodriguez

09:41, 01 February 2023


Gold rose yesterday in response to the Fed's expected reduction of interest rate hikes, driven by yesterday's data. It has now reached a support zone around 1,900. 

Today, the Federal Reserve is making its decision on what the interest rates will be.  

The market is betting that the Federal Reserve (Fed) will raise rates by a quarter of a percentage point. Chairman Jerome Powell will hold a press conference after the decision is announced, as is customary, and investors will be closely monitoring his words for any clues about the Fed's future plans. 

This week also sees the release of labor data. In addition to the jobs report from Friday, the most recent reading of the employment cost index was released yesterday. Labor costs rose less than expected in the fourth quarter, rising 1% from the third quarter versus a 1.1% increase and a 1.2% increase in the third quarter. 

This data encouraged investors, since the Federal Reserve closely monitors the evolution of labor costs to determine its monetary policy. Therefore, a figure like the one published yesterday, which shows signs of no salary pressure, increases expectations that the Fed will be less aggressive in the future. Following the release of data, stocks moved out of negative territory, bond yields decreased and the US dollar weakened. 

In addition to the positive market data, yesterday the housing price index was published, showing a negative result for the month of November. The Chicago PMI was lower than expected, and consumer confidence fell to 107.1 in January, compared to 109 in the previous month. 

All the figures show a slowdown in the economy and a decline in price levels. This is the ideal scenario for the Federal Reserve to be less "hawkish" in its statements today. 

Related: Dow Jones analysis and price predictions 

In terms of how the release of corporate earnings affected the stock markets yesterday, the poor performance of companies like Pfizer (PFIZER) and McDonald's (mcdonalds) after releasing their 4th quarter earnings was offset by General Motors (GM), whose earnings beat expectations and showed better-than-expected prospects for 2023. The US vehicle manufacturer rose 8% during the session. 

Given expectations that the Fed will reduce the intensity of interest rate hikes, largely due to the data released yesterday, gold rose from its lows after a downward correction in the three previous sessions, taking it to the support zone around 1,900. Technically, the yellow metal is still in an uptrend, with a target of 1980 and an intermediate resistance zone of 1949. 

Related: Gold analysis and price predictions 

Sources: Bloomberg, Reuters 

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This information/research prepared by Miguel A. Rodriguez does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.The research provided does not constitute the views of KW Investments Ltd nor is it an invitation to invest with KW Investments Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.The research analyst in not employed by KW Investments Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation, or particular financial needs before making a commitment to invest. The laws of the Republic of Seychelles shall govern any claim relating to or arising from the contents of the information/ research provided.