Listen to the latest market mood for the XAUUSD pair.

The outlook for Gold remains strong medium term. The FOMC meets tonight and they may have to put yield curve control into action in order to keep their borrowing costs lower. If bond yields rise too fast at the longer end (10 year+) that will increase the longer term borrowing cost. If the Fed decided to ‘control the yield’ through buying these longer dated bonds (through QE) then that will weaken the USD and increase the bullish case for gold.

So, as the FOMC prepares to meet today we are expecting the following reaction from the market:

  • Fed uses Yield Curve Control (YCC): expect USD weakness and Gold strength.
  • Fed becomes upbeat on US’s outlook: expect stocks to fall.
  • Fed becomes upbeat and does not put YCC in place: USD strength alongside falling stocks.

This event is going to be important for the near term direction of currencies, so expect choppy price action going into the event.

We expect this outlook to play out over the next 6-10 hours going into the FOMC.

Main Trade Risks

The main trade risk is if the FED is more upbeat than expected and does not put YCC into place allowing bonds to break higher and USD to strengthen which in turn will weaken gold.