The Federal Reserve is due to release the statement from their April meeting. What can we expect and how can it affect the gold market?

The Fed is expected to leave interest rates unchanged. The market probability of a rate hike this month is literally zero, according to the CME’s FedWatch tool. This is why the U.S. central bank is unlikely to raise interest rates in April. The Fed definitely does not want to surprise investors and cause any market turmoil. Therefore, this meeting will be generally about the June meeting.

Given that the data incoming since the March meeting has not been particularly supportive for the hawks (the GDP has slowed down, while inflation remains low), we doubt that the Fed will clearly signal a June rate hike. However, a lot of economic reports will be released between the April and June meetings, therefore the FOMC probably wants to keep the option for a June hike open. Since the market odds of a rate hike in June are merely 22.5 percent, the Fed is likely to send a relatively hawkish message, to signal that June is still on the table. The timing of such a move is fortunate, as the ECB left its interest rates unchanged this month and the U.S. dollar has recently been depreciating. Therefore, the hawkish statement is now more likely.

How could the April Fed’s statement affect the gold market? Well, a dovish message would be positive for the yellow metal, while a hawkish message may be a drag on the price of gold. We believe that the relative improvement abroad and in the U.S. financial situation allows for a more balance assessment of risks to the outlook. Such a hawkish change, if stronger than anticipated, is likely to be negative for the shiny metal. However, investors should remember that it is hard to predict the outcome of the Fed’s meetings and how the markets will interpret it (since the FOMC statements are often mixed).