Gold Price Forecast: XAU/USD to drift back lower on a hawkish Fed

Gold ends up closing the second straight week in positive territory. On Wednesday, the Federal Reserve will announce its policy rate decision and release the Monetary Policy Statement following its two-day meeting. In the view of FXStreet’s Eren Sengezer, XAU/USD could turn south on a hawkish Fed surprise.

Dovish scenario

“The Fed adopts a dovish tone by suggesting that it will remain patient with regards to policy tightening. US T-bond yields could fall sharply on such a shift in the policy outlook and provide a boost to XAU/USD. FOMC Chairman Jerome Powell would need to voice renewed concerns over the labour market and the growth outlook to convince investors that they will not rush to continue to lift rates after March.” 

Hawkish scenario

“Chairman Powell will definitely have to respond to questions on the possibility of a 50 bps hike in March. If Powell reveals that they have discussed such an option, US T-bond yields could surge higher and force gold to turn south. Moreover, a decision to increase the reductions in monthly asset purchases could also be assessed as a bullish development for the greenback.”