Gold prices end at a more than 2-week high as September Fed meeting looms

By Myra P. Saefong and Joseph Adinolfi

Gold prices settled Monday at their highest in more than two weeks, finding some support from weakness in the U.S. dollar ahead of a Federal Reserve decision on monetary policy later this week.

Price action

Market drivers

Gold has been holding its ground, digesting prior gains, while "outside fundamental pressures," such as strength in Treasury yields and strength in the U.S. dollar "fail to decisively push prices down," said Adam Koos, president at Libertas Wealth Management Group. "This is a positive for gold, in my book."

Gold futures edged up by 0.2% last week.

Inflation is becoming less of a factor as disinflation continues to be the "new normal," said Koos. So, while the Fed decision on Wednesday is surely going to make an impact, and while [Fed Chariman] Jerome Powell could surely hike rates another 0.25% with rhetoric that leans toward continued 'caution,' we all know that someday -- whether that's this week or sometime later this year -- the Fed is going to stop tightening and their plan is going to shift to one of 'what's next'."

What's next is likely a period of "market normalcy, where the markets act on their own, as opposed to being swayed by the invisible hand," followed by a time some point in the future -- perhaps even 2024, when the Fed starts cutting rates again," Koos said. That would "certainly be good for gold futures."

The Fed's two-day September policy meeting concludes on Wednesday. The central bank is expected to leave interest rates on hold.

Read:4 things to watch for at this week's Fed policy meeting

Against that backdrop, the ICE U.S. Dollar Index DXY, a gauge of the greenback's strength against a basket of rivals, was down 0.3% at 105.04 in Monday dealings.

Month to date, gold prices have moved marginally lower, "primarily reflecting the uptrend in U.S. real yields, although it remains roughly 6% higher over 2023," analysts at ICICI Bank wrote in a recent research note.

"With markets pricing in a 'soft-landing' scenario for the U.S. economy...we see limited downside in U.S. yields that will ensure that gold prices trade with a downside bias in 2023," they said.

Still, "a reversal in gold prices is possible if the FOMC pivots to a neutral regime and prepares markets for possible rate cuts" the second quarter of 2024 onwards," the ICICI Bank analysts said.

-Myra P. Saefong

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09-18-23 1404ET

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