Gold Price Forecast: Fed Hikes Rates as Expected, May Raise Again This Year; Can Gold Hold $4,200?

TradingKey - As of the Asian session on September 17, gold prices (XAUUSD) rebounded quickly after dropping sharply to $4,235.44 on Wednesday, returning above $4,300 during intraday trading today and rising to a high of $4,318.26. Gold prices once surged above $4,365 on Wednesday before tumbling sharply following the Federal Reserve's rate decision. Today's rapid rebound in gold prices indicates that short-term selling triggered by the bearish news is drawing to a close.

Fed Officially Resumes Rate Hikes as Dot Plot Signals Stronger Hawkish Stance

As expected by the market, the Federal Reserve raised interest rates by 25 basis points at its September meeting, lifting the target range for the federal funds rate from 3.50%-3.75% to 3.75%-4.00%, with all 12 FOMC voting members unanimously supporting the decision. This marks the Fed's first rate hike in three years and its first policy adjustment since Kevin Warsh took office as Fed Chair. The Fed statement noted that US economic activity continues to expand at a solid pace, with domestic spending remaining resilient, productivity growth strong, and capital investment robust, while inflation remains elevated; therefore, this rate hike is aimed at bringing inflation back down to the 2% target in a more timely manner.

More noteworthy at this meeting was the updated dot plot. The latest projections show that 16 out of 18 officials expect at least one more 25-basis-point rate hike before the end of 2026, while only two officials believe the current rate level can be maintained through year-end. The median forecast for the federal funds rate at year-end rose to 4.1%, corresponding to a target range of 4.00%-4.25%, and the median forecast for the end of 2027 remains at 4.1%, indicating that the Fed currently does not anticipate a quick pivot to rate cuts next year.

Meanwhile, the Fed raised its median forecast for 2026 PCE inflation to 3.7%, up from 3.6% projected in June, with core PCE inflation expected to reach 3.4%; at the same time, inflation is not expected to return to the 2% target until 2029. By contrast, the Fed revised its GDP growth forecast for this year up to 2.3% and lowered its unemployment rate forecast to 4.1%, indicating that policymakers believe the US economy still has some capacity to absorb higher interest rates.

Warsh's remarks at the press conference further reinforced this policy tone. He stated that it is difficult to describe broad financial conditions as "restrictive," and therefore the Fed is effectively "withdrawing a degree of accommodation." He also noted that the US economy has strengthened recently, with domestic spending, employment, and capital investment remaining resilient. According to CME FedWatch data, the probability of another 25-basis-point rate hike before the end of this year rose to approximately 90%.

While the 25-basis-point rate hike had been largely priced in by the market, the policy path suggesting another potential rate hike this year and keeping interest rates elevated through 2027 significantly squeezed market expectations for a faster monetary easing. Following the announcement, the US dollar strengthened across the board, the 2-year US Treasury yield rose to a more than two-year high, and the 10-year Treasury yield hovered around 5%, putting pressure on non-yielding gold.

Gold Price Technical Analysis

Gold Price Daily Chart, Source: TradingView

Looking at the daily chart, gold prices plunged yesterday under the bearish impact of the Federal Reserve's rate hike to a low of $4,235.44, which remained above the 60-day moving average. The closing price for the day held firmly above the 60-day moving average, followed by a swift rebound that saw gold surge to an intraday high of $4,318.26 today, demonstrating strong support at the 60-day moving average.

At present, if gold's closing price today holds firm above the 60-day moving average, prices may extend their rebound to test the resistance level near yesterday's high of $4,366. A break above this level would open up upside room toward the resistance level at $4,510.

Conversely, if gold falls below the 60-day moving average, it may drop further toward the $4,200 mark. If this level fails to hold, gold prices could undergo a deeper pullback toward the $4,000 mark.