Inflation Persists? How Fed Could Move Gold in 2024

In an October 19 speech at the Economic Club of New York, Federal Reserve Chair Jerome Powell underscored the persistent challenge of high inflation. Despite a slight cooling down, with the Consumer Price Index (CPI) reporting a rate of 3.7% on October 12, inflation remains notably above the Fed's 2% target. Powell described the journey to curbing inflation as "bumpy." His remarks come on the eve of the Federal Open Market Committee (FOMC) meeting scheduled for October 31, leaving investors on edge about the potential implications for various assets, including gold.

Here in Australia we just had another surprise yesterday with inflation data coming in hotter than expected by rebounding to 1.2%. According to IG’s Tony Sycamore, "We think a Melbourne Cup Day rate rise is likely a formality after today's inflation overshoot, and given the RBA's more hawkish communique." In this regard, it looks like the RBA has much in common with the Fed. So how might this affect the gold price?

The Fed's Stance and Its Implications for Gold Prices

Uncertainty Looms:

Following the recent two-day FOMC meeting in September, the Fed opted to pause its interest rate hikes, signaling a cautious approach amid economic uncertainties. This decision, although welcomed by struggling Americans trying to pay down debts, has left many wondering about the Fed's future moves. If they end up holding for longer, it could be just as bad, or worse.

Gold as a Safe Haven When All Else Fails:

In the face of inflationary pressures and the Fed's strategic decisions, the demand for gold could rise. Historically, when inflation rates are high, investors seek the stability of gold, causing its prices to surge. Now, the Fed has been hiking and "tackling" inflation, but apparently it is still an issue. And to the critical reader, any hikes are also very temporary, meaning that as soon as the Fed pivots, roaring inflation could come back bigger than ever and potentially have a profound effect on the price of gold.

Two Potential Scenarios for Gold Prices:

Given the Fed's cautious stance, experts predict a careful approach in the upcoming months. While some anticipate a possible rate hike in December or future meetings, the uncertainty surrounding global markets may prompt investors to turn to gold (sometimes the only thing scarier than certainty is uncertainty). The two ongoing hot wars that are pulling in support from global superpowers only compound this. In such a scenario, gold prices could witness an upswing as demand escalates. 

Looking at Gold/USD, we can see there is still much more room to go to the major resistance roughly $85 higher:

Another potential scenario could involve the actions of the Fed cracking most markets and causing rapid selloffs. This could put a tremendous amount of pressure on the Fed to do a hard pivot and revive markets, and we all know the only way they can make that happen. This could play out like the 2020 crash and others before it, in which there were sharp selloffs followed by surges in liquidity and record-high gains for gold.

Politics:

The last major factor could be the Fed avoiding doing anything drastic due to upcoming elections in November 2024, but are they able to lock the stock market in place for good optics until the elections are over? This seems easier said than done. Perhaps it would be easier to instigate a crash sooner and then follow it with liquidity-fuelled all-time-highs. Experts agree that if the Fed maintains a high-interest-rate environment throughout 2024 and individuals face the prospect of higher costs for mortgages, cars, and other significant purchases, they may turn to gold regardless as a means of preserving their wealth amid economic uncertainties.