A shift in sentiment favoring a 50 basis point rate cut by the Federal Open Market Committee (FOMC) this week, rather than the expected 25 basis points (bps), could be bullish for gold in the short term, HSBC analysts said Monday.
However, expectations for the total rate cuts this year remain unchanged. HSBC's economists still anticipate a 25 basis point cut.
Apart from the rate decision, the FOMC will also update its quarterly projections for real GDP growth, unemployment, inflation, and policy rates. HSBC expects minimal changes to the median projections for GDP growth and inflation, but unemployment forecasts could shift slightly.
They anticipate the FOMC will lower its median projection for the federal funds target range at the end of 2024 to 4.50-4.75% (down from 5.00-5.25%), consistent with their forecast for 25 basis point cuts in September, November, and December.
For 2025, the bank projects the FOMC’s median projection for the federal funds target range to decrease to 3.75-4.00% (down from 4.00-4.25%), in line with their forecast of an additional 75 basis points in rate cuts over the first three quarters of next year.
If the FOMC cuts rates by 25 bps on Wednesday, it could bode well for the US Dollar, especially with the extensive pricing for larger rate cuts already factored into markets and signs of excessive short USD positioning.
“This would weigh on gold most likely,” analysts emphasized.
“The momentum in gold is upward but some technical indicators such as the RSI are outside of Bollinger Bands and showing signs the market is increasingly ‘overbought.’ This leads us to suspect that further upside for gold may be very hard to win,” they added.
While Wednesday’s FOMC decision is the primary market focus, a variety of data releases this week could also influence gold, silver, and Platinum Group Metals (PGMs).
Key data to watch includes U.S. retail sales, industrial production, housing starts, jobless claims, and the leading index, as well as UK CPI and PPI, Bank of England decisions, Japan’s CPI, and UK retail sales.
