Gold prices eye FOMC but the Fed may take a “wait and see” approach amid war-induced volatility and uncertainty. Bullion’s near-term direction relies upon the on-the-ground situation in Ukraine. Get your weekly gold forecast from FxWestwater here:
. The surge in prices cast a fresh cloud of doubt over the Federal Reserve’s calculus ahead of Wednesday’s rate decision when policymakers are expected to hike the US benchmark rate by 25 basis points.
Typically, gold and other assets would be keenly focused on a Fed rate decision, but the FOMC event may take a backseat to the ongoing and rapidly changing situation in Ukraine. That is partly due to the economic uncertainty that has been injected into the global economy. Outside the 25 bps hike, the Fed may opt to take a “wait and see” approach instead of offering firm guidance on policy. That said, the war has likely already pushed actual inflation higher in the near term.
Gold prices may fall if near-term risks recede, whether it be a major escalation or a complete resolution to the war. Inflation expectations would likely fall back to or near pre-invasion levels under that scenario. That would likely drag gold lower, but prices may remain higher than where they were before Putin’s invasion, given the spillover effects that will likely outlast the conflict, albeit to an unknown degree.
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