Fed hike would be best for gold in the long term - Analysts

It is almost impossible to justify interest rates being at near-zero given "the cumulative improvement in the economy over the past few years means," says Paul Ashworth chief, U.S. economist at Capital Economics.

"Nevertheless, a number of Fed policy makers clearly want to use the recent volatility in financial markets as a reason to delay the first rate hike yet again.”

Indeed, the opinions seem to be split with different polls showing different results.

A poll conducted by Bloomberg sees a 30% chance of a rate hike, while the one by the Financial Times says there is a 47% chance of a rate increase.

What do experts await for gold?

While the yellow metal could see a boost with the Fed standing pat, it might be short lived as the central bank is still expected to keep a move in December on the table.

Ted Sloup, senior market strategist at iiTrader said that gold is still in a big down trend despite the Fed leaving rates unchanged all year. “We are waiting for a catalyst that will push gold higher and we just don’t have it yet.”

Sean Lusk, director of commercial hedging at Walsh Trading, agreed that a rally would be short-lived.

Colin Ciesznski, senior market strategist at CMC Markets, said he is bearish on gold prices in the near-term. Even if they don’t raise rates at this meeting, Fed Chair Janet Yellen could stick to a hard stance at her press conference and signal that rates will move higher in October or December.

The best scenario for the gold market would be increasing rates in September, as most analysts consider. While prices could dip to long-term support at $1,080 an ounce, it could be the contrarian view many have been waiting for.

Both Sloup and Lusk said at that level they would be looking to go long on a “pure contrarian play.”

Bernard Dahdah, precious metals strategist at Natixis, said that he could see gold prices dip to $1,050 /oz in reaction to the Fed hiking rates Thursday.

Adrian Day, president of Adrian Day Asset Management, said to Kitco News that it may take a week or two for the market to accept and digest the consequences of a rate hike, but agreed that it could be bullish for the metal.

“An increase would be modest and the market would give a sigh of relief that the long-awaited threat of higher rates is behind us and of no consequence,” he said.