The Fed's interest rate decision this week will be decisive for gold as many believe that the central bank will ignore the large dip in US 1st quarter GDP, remaining focused on its fight against inflation. Presumably, by the end of April, gold will fall by 1.7%.
Senior market analyst Edward Moya called April a terrible month for gold, with many traders surprised by yet another strong upward move in the US dollar.
The main reason why USD increased was concerns about the economic downturn in Europe, China's strategy to combat COVID-19, the Fed's aggressive stance and expectations of a larger interest rate differential between dollar and its major trading partners.
Most likely, Fed Chairman Jerome Powell will continue to focus on inflation, especially given the price pressure that is underway in the US. The two things that markets are anticipating to see are the 50-basis-point rate hike and start of quantitative tightening. The latest FOMC minutes meeting hinted that monthly caps of about $60 billion for Treasury securities and about $35 billion for MBS would be appropriate. But in the future, the Fed is unlikely to follow this aggressive policy because of weak GDP data.
Looking forward, Bloomberg strategist Mike McGlone said gold could increase if the Fed hesitates to impose an aggressive rate hike. If that happens, the metal may see a price of more than $2,000 an ounce.
Edward Moya also said that gold could rally after the Fed meeting.
