The Federal Reserve is expected to raise interest rates by 25 points this week, wary of Powell's speech causing gold prices to fall further

The market is expecting the Federal Reserve to raise interest rates by 25 basis points this week, and analysts are now preparing to analyze the remarks after Federal Reserve Chairperson Powell. There is also a risk of further pullback in gold prices this week, but much depends on Powell's remarks. Ryan McKay, senior commodity strategist at TD Securities, said there will be a period of uncertainty and reliance on data before the Federal Reserve signals that it is done raising interest rates. For gold, that could mean a pause before the next rally.

The price of gold approached $2,000 an ounce earlier this week as the market thought the Federal Reserve might be nearing the peak of interest rates, but then the trend in gold prices has collapsed.The market expects the Federal Reserve to raise interest rates by 25 basis points this week, and analysts are now preparing to analyze the remarks of Federal Reserve Chairperson Powell after that.

Edward Moya, senior market analyst at OANDA, said the gold market reacted to a stronger dollar after the Bank of Japan signaled it would maintain ultra-loose monetary policy this week and saw no urgency to adjust its yield curve control plan.

This is in sharp contrast to the Federal Reserve's upcoming meeting this week.According to data from the CME Federal Reserve Watch Tool, the probability of a 25 basis point rate hike at this week's meeting is close to 100%.。Moya said: "There are reports that,The Bank of Japan tends to maintain its yield curve control strategy unchanged, and the dollar strengthens, causing gold prices to weakenThe dollar has set off a small wave here, putting gold's third-week gains at risk. "

Gold prices are also at risk of falling further this week, but much depends on Powell's remarks。

Mr. Moya added: "There will be a lot of news coming out this week, which could support a further correction if the Fed retains the option to tighten further and corporate earnings continue to show that the US economy remains resilient. Gold looks set to consolidate in the $1,940- $1,980 range before the Fed fireworks are lit this week."

There was much optimism last week that the Fed's tightening cycle was coming to an end, despite Powell's pledge to raise interest rates at least twice more this year.

Paul Ashworth, chief North American economist at Capital Economics, said: "At this week's FOMC meeting, the Fed will almost certainly raise the policy rate by 25 basis points to between 5.25 and 5.50 per cent, but we are increasingly confident that this will prove to be peak rates."

Behind the optimism was inflation data for June, which showed a sharp cooling in the US. CPI rose 3 per cent last month, its slowest pace in more than two years. The core measure, which excludes volatile food and energy prices, rose 4.8 per cent, its smallest gain since 2021.

"Despite the rhetoric from officials that interest rates will be'higher for longer ', a more pronounced decline in core inflation in the second half of the year and easing labour market conditions will finally persuade the Fed to pivot and cut rates significantly next year," Ashworth noted on Friday.

For this week's FOMC statement, analysts will be closely monitoring any changes in the inflation narrative and the strength with which the Federal Reserve maintains its tightening bias.

Ashworth said: "In his press conference,Federal Reserve Chairperson Jerome Powell may even stress that further rate hikes are still necessary this yearButThe market is not convinced, and largely agrees with us, that the Federal Reserve is almost done tightening。”

Ryan McKay, a senior commodities strategist at TD Securities, said:There will be a period of uncertainty and reliance on data before the Federal Reserve signals that it is done raising interest rates. For gold, this could mean a pause before the next rally。

"Speculators have been reluctant to fully buy into the bullish gold story," Mr. McKay said on Friday.So far, traders and investors who are free to decide remain on the sidelinesHowever, if expectations for the Federal Reserve become more dovish, this also provides additional upside potential

The European Central Bank is also expected to raise interest rates by 25 basis points this week, with analysts closely watching the speech of ECB President Christine Lagarde. Meanwhile, the Bank of Japan is expected to keep interest rates stable and its yield curve control unchanged.

"The BoJ appears to be holding its ground while other major central banks are tightening policy, which should continue to drive carry trades," Moya noted.

Daily chart of spot gold

At 13:50 on July 24, Beijing time, spot gold was quoted at $1960.58/ounce