Gold has remained stable in recent trading sessions. The Fed meeting will already be held tomorrow. The core interest rate is about to be raised by 0.25% for ten times in a row. According to expectations, this will be the last step in the U.S. central bank’s efforts to tame inflation. Gold is poised for rate hikes, but the regulator’s statements on future plans might become a surprise.
Investors are making different assumptions about Powell’s speech. One of them is that the Fed will finally stop raising rates. Others suggest that the pause will be announced under the condition of resuming rate hikes if inflation remains steadily above 2%.
Last weekend First Republic Bank collapsed, making it the second-largest bankruptcy in history. However, this event will not stop the Fed from raising rates on Wednesday. First Republic Bank was the third bank that collapsed in the past two months. It was sold to JPMorgan Chase on Sunday.
Problems in the global banking system are a bullish driver for gold.
The U.S. Secretary of the Treasury Janet Yellen said that funds to pay the country's debt obligations may run out by June 1. This will happen if the U.S. Congress fails to raise the previously established public debt limit. If the subsequent increase in the public debt limit does not happen by early summer, the situation could take a more serious turn.
Yellen asked members of Congress to act immediately, as non-payment of liabilities will undermine the confidence of American businesses and consumers, as well as increase the cost of short-term loans in the country. Another important consequence will be the downgrading of the U.S. credit rating.
This uncertainty supports gold. However, the government debt problem is likely to be solved by the summer, negatively affecting the yellow metal prices.
According to the technical analysis, gold is trading in a flat range and is now at its lower limit. Long positions might be opened, expecting a rise in gold prices before tomorrow’s Fed meeting. The growth target for the yellow metal will be the round level of $2,000. It is near the upper limit of the rectangle. A Stop-loss will be set at declining below the lower limit, which corresponds to the price of $1,973.
Gold prices are likely to rise:
Take profit – 2,000
Stop-loss – 1,973
This content is for informational purposes only and is not intended to be investing advice.
