Adding 25 bps to the May FOMC meeting | Gold Forecast after Fed

FOMC meeting: Morgan Stanley upwardly revised its Federal Reserve (Fed) rate forecasts after Fed Chair Jerome Powell’s speech.

• Market players await Federal Reserve Chairman Jerome Powell’s words.
• US indexes and government bonds stay pat ahead of Fed’s clues.
• Yellow Metal trades within familiar levels, still consolidating post-NFP losses.

The investment bank unveiled a 0.25% rate hike expectation for the March meeting after a strong US jobs report on Friday, before conveying hopes of 25 basis points (bps) Fed rate hike in May following Powell’s speech.

The same brings Morgan Stanley’s expectation for the peak rate to 5.00% to 5.25% as per the latest forecasts.

It should be noted, however, that Fed’s Powell showed hesitance in praising the latest jump in the US Nonfarm Payrolls (NFP) during the latest appearance while asked the same of being a force to the Fed’s benchmark interest rate higher than the 5% to 5.25% range currently anticipated. The same suggests a pause in the Fed rate after currently priced-in two rate hikes worth 0.25%.

Yellow Metal Forecast: Limited correction likely to precede fresh weakness

Gold price is holding within a narrow consolidation for the second consecutive day after falling by 4.4% last Thu/Fri.

Limited upticks suggest that strong downside pressure persists, keeping in play risk of deeper correction of larger $1614/$1959 rally.

Recent stronger than expected US labor data added to expectations that the Fed will remain hawkish, with comments from US policymakers signaling that the central bank continue to raise interest rates to at least 5.4%, to bring high inflation under control.

I addition, tight labor market signals that further rise of borrowing cost may not be so harmful for economic growth and diminish the risk that the economy will fall into recession.

Oversold conditions on daily chart warn of prolonged consolidation, with near-term action so far being unable to sustain break above weekly cloud top ($1875) which reverted to initial support and extended upticks expected to stay under broken psychological $1900 level.

This could keep near-term bias with bears and offer better selling opportunities for push towards targets at $1839/27 (55DMA / Fibo 38.2% of $1614/$1959).