Fed Rate Hike Imminent: Is Gold Still Worth Chasing at $4,300?

International gold prices climbed back above $4,300 per ounce on the 16th as the countdown to the Federal Reserve’s interest rate decision began; markets are betting there is a greater than 90% probability of a 25-basis-point (one-quarter percentage point) rate hike. Leading economists believe that since expectations for a rate hike are already largely priced in, the actual decision is significant, but the true drivers of gold prices will be the post-meeting remarks by Fed official Kevin Warsh and the latest “dot plot” projections. In particular, whether the market forms expectations for another 25-basis-point hike in December will determine the future trajectory of both the US dollar and gold.

Lo Wei, Chief Economist at Fubon Financial, stated that a rate hike is anticipated. Following the decision, the focus will shift to Warsh’s comments; if he maintains a hawkish stance, the market may anticipate another 25-basis-point hike in December, keeping the US dollar relatively strong and suppressing gold prices.

Luo Wei noted that following the speech delivered by Fed Chair Powell on August 28, the price of gold immediately dropped from $4,610 to $4,478 per ounce—a decline of over $130—driven by a hawkish stance that heightened market expectations for a September rate hike. The upcoming meeting will also release the latest “dot plot”; if it clearly indicates that a majority of Fed officials believe a pause is appropriate after a September hike, this would be relatively favorable for gold. Conversely, if the data suggests room for further rate hikes, gold prices could remain under short-term pressure, though support should hold near the $4,300 level.

Lin Chi-chao, Chief Economist at Cathay Asset Management and Cathay United Bank, stated that gold prices have recently hovered within the $4,300–$4,450 per ounce range; in the short term, upside potential remains limited due to expectations regarding interest rate hikes. If market expectations for hikes in December and the coming year intensify, the US dollar would receive stronger support, thereby suppressing gold prices.

Lin pointed out that oil prices are another critical variable influencing future monetary policy. If oil prices fail to retreat in the fourth quarter, it will become more difficult to bring inflation down to the Fed’s 2% target, potentially raising the possibility of further rate hikes as late as next March. Nevertheless, with central bank buying providing support, the scope for a significant drop in gold prices remains relatively limited.