Could The FOMC Push Gold Down? It's Possible

In a new report, UBS analyst Joni Teves takes a look at the impact that the FOMC could have on gold prices. According to Teves, a pullback in gold prices could be healthy for the market.

“Some more consolidation at this point should be healthy for gold given strong price gains year-to-date, a considerable increase in Comex positioning and the rebound in risk,” she explains.

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So far this year, the SPDR Gold Trust (ETF) GLD has rallied 16.1 percent without logging a significant pullback.

Teves believes that markets are not expecting another rate hike from the FOMC this week. However, she believes that risk for gold is currently skewed to the downside, as positive U.S. data likely means that the Fed will not sound too dovish in its commentary. Any downside risk to gold could be compounding by traders taking profits on string 2016 gains.

UBS anticipates that the underlying long gold positions that have been established this year are strong enough to survive a short-term pullback. Teves predicts that a drop in gold prices will likely be met with buying.

In the physical markets, Teves notes relatively weak demand and plenty of scrap. A dip in prices could encourage some buying, but UBS has relatively low expectations in the short-term.

Disclosure: the author holds no position in the stocks mentioned.