FOMC Looms: Check Out the Predictions!

Gold prices entered Wednesday's trading (Oct 7) with the potential for a rebound as US Treasury yields began to retreat from multi-decade highs. Spot gold is hovering around US$4,160 per troy ounce, while the market awaits the release of the FOMC minutes on Thursday at 01:00 WIB. These minutes are crucial as they may offer a clearer picture of Fed officials' views following the 25-basis-point rate hike in September.

According to Newsmaker, the biggest risk tonight stems from the possibility that the minutes could be more hawkish than current market expectations. This is because the minutes reflect the views of Fed officials during the September meeting—prior to the latest Non-Farm Payroll (NFP) data revealing significant labor market weakness. Consequently, the content could still highlight concerns regarding inflation and the need to maintain a tight monetary policy.

If the minutes reveal that the majority of Fed officials still view inflation as a primary risk and leave the door open for further rate hikes, the dollar and Treasury yields could strengthen again. Such a scenario could pressure gold, as non-yielding assets become less attractive compared to bonds. From a technical standpoint, the US$4,100 area serves as a key support level. If this level is breached under strong selling pressure, gold could extend its correction toward the psychological US$4,000 mark.

Conversely, a bullish scenario would gain momentum if the minutes reveal divergent views regarding economic and labor market risks. If the market perceives signals that the Fed is becoming more cautious about growth and is in no rush to raise rates, yields and the dollar could weaken. This environment could pave the way for gold to retest the US$4,200 level, followed by the US$4,230–US$4,300 range should the upward momentum persist. Newsmaker assesses that the FOMC minutes have the potential to trigger high volatility but will not necessarily immediately determine a new trend for gold. The market currently stands at a crossroads between waning expectations for rate hikes and the inflation concerns that remain a focus for the Federal Reserve. Consequently, the reaction of yields and the dollar following the release of the minutes will be crucial. If yields fall, gold has the potential to extend its rebound; however, if yields surge again, the US$4,100 level will serve as a critical test for the metal.