Sep 21, 2023

Gold prices are awaiting Wednesday’s FOMC interest rate decision for further price stimulus.

XAUUSD: Weekly Chart

XAUUSD: Weekly Chart

The price of gold trades at the $1,932 level, with resistance ahead at the $1,940 and $1,960 levels, ahead of a potential push for $2,000.

The Federal Reserve was expected to hold its benchmark interest rate at a 22-year high on Wednesday but also signal that it remains willing to tighten further as it surveys coming data on the US economy.

The Federal Open Market Committee was set to conclude its two-day meeting by holding interest rates at a 20-year high of between 5.25 and 5.5%. The central bank has been hiking interest rates since March 2022, but many analysts believe there will be one more raise later this year, before a potential cut in 2024.

A pause on Wednesday could boost the price of gold even as inflation recedes. Another stimulus for bullying has been talk of another US government shutdown over funding struggles. The US national debt passed $33 trillion, and there is talk of a shutdown as Congress has failed to agree on funding terms.

That shutdown could worsen sentiment for stocks and deal a blow to the economy, which is already facing higher fuel prices. Fitch ratings delivered a downgrade on US sovereign debt from AAA to AA+ in August, citing the country’s debt and spending problems.

The government’s budget deficit reached $1.5 trillion for the first 11 months of the fiscal year, up 60% since last year. The rise in interest rates has made it even harder to pay that back, and Republican politicians are pushing back on the president’s spending plans.

Michael Peterson, CEO of the Peter G. Peterson Foundation, said “With more than $10 trillion of interest costs over the next decade, this compounding fiscal cycle will only continue to do damage to our kids and grandkids”. 

The fiscal situation will put a floor under gold prices, and a pause in interest rates could hint that gold’s underperformance due to yield can also turn around in the coming months.

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