Gold in Focus Ahead of FOMC, ECB, and BOJ Meetings

Gold prices have fallen dramatically over the last couple of weeks amid hopes of smoothing trade relations. Now, a series of major central bank decisions might shock gold again.

Key Rate Decisions

• The FOMC is expected to cut rates by 25 bps, prioritising a weaker job market over inflation, which could help gold prices recover.
• The ECB is expected to hold, as inflation is on target, but traders will be looking for signs that it might consider easing again amid a sluggish economy.
• More fiscal expansionism in Japan is seen putting pressure on the BOJ to hold off on rate hikes, with the consensus that Thursday's meeting will keep rates unchanged.

Fed to Cut and Keep Cutting

The Fed is expected to cut rates by 25 bps on Wednesday, the second in what the market forecasts as three rate cuts for this year. The focus of the event will likely be Fed Chair Jerome Powell's post-rate decision press conference. Futures markets have priced in a 90% chance of a rate cut at the December meeting, and traders will be looking for confirmation. Previously, Powell had signalled that there was a balance of risk between rising inflation and a weakening job market. If he signals greater concern about the unemployment situation than about inflation, the markets could expect further easing. The recent run-up in gold prices was primarily driven by market expectations that the Fed would cut rates through the rest of the year and continue easing into 2026. The focus could also shift to the US government shutdown, as the absence of official economic data could complicate the Fed's task. On the other hand, the shutdown is expected to weigh on economic growth, tilting the balance toward more easing.

ECB to Hold, But Could Signal Easing

Markets are practically convinced that the ECB will hold rates unchanged on Thursday. There are no dissenting economists in that view. However, there could be increased focus on President Christine Lagarde's post-rate decision press conference to see if there is any chance of one last rate cut in the current easing cycle. With inflation at the bank's target, there isn't much urgency to cut. However, economic underperformance could drag inflation below target in the future, and the ECB might want to ease rates in anticipation. Last time around, Lagarde said that inflation and monetary policy are in a good place. Traders will be on the lookout for signs that the ECB is concerned about economic growth, which could raise the odds of a near-term rate cut. Such an outcome might weigh on the euro and provide some tangential support for gold.

When Will the BOJ Hike?

Markets broadly expect the BOJ to keep rates unchanged, despite months of rhetoric suggesting it would raise interest rates if the conditions warranted it. The last time the BOJ hiked was back in January, and futures markets are pricing in a 50-50 chance of a hike by the end of the year. However, in light of new Prime Minister Sanae Takaichi's dovish stance on fiscal policy, analysts are suggesting the BOJ could become more dovish. If that appears in Governor Kazuo Ueda's lengthy post-rate decision press conference, it could weigh on the yen. The BOJ has repeatedly said that it expects inflation to remain elevated due to rising wages. However, increased government spending would likely put a ceiling on how much the Japanese central bank can tighten, given the nation's government debt, which is over twice the nation's GDP. While the Fed keeps cutting rates, shrinking the interest rate gap between the currencies, the BOJ could have room to hold pat.

Gold Remains in Risk Zone

Gold has been trying to recover from recent losses down at $3885 in an attempt to reclaim the 4k handle and revisit the $4150-4190 territory that separates bullish from bearish price action. After a triangle breakout near $4050, the measured move projection points to $3665 as the ultimate target for bears. However, the low could be in for now if the Fed turns out to be more dovish than expected. In that scenario, revisiting the area above the upper triangle trendline could refocus on the double top at $4380, with interim resistance at $4270.

Source: SpreadEx | Spot, Gold