Market expectations are overwhelmingly pointing to a 25-basis-point rate hike from the Federal Reserve. According to independent precious metals analyst and founder of The Bubble Report, Jesse Colombo, if the Fed follows through with the anticipated hike, the removal of lingering market uncertainty could trigger a modest recovery in gold prices. However, should the Fed choose to hold rates steady against market consensus, gold could experience a significant surge, potentially igniting an upward trajectory toward the $5,000 per ounce milestone.

US CPI Data Shifts Sentiment; $4,400 Remains Crucial Hurdle for Gold

Colombo noted, "The market had widely predicted a much hotter CPI reading, and the selloff in gold was somewhat overdone. While the actual data came in above expectations, it wasn't exceptionally strong. Pessimism had been excessively priced in before the release, and once the numbers were out, gold immediately benefited from a sentiment correction. However, the metal quickly became overbought, leading to a short-term consolidation phase, which is exactly what we witnessed in the subsequent hours of trading."

Colombo also highlighted that gold touched the $4,400 resistance level during the CPI-driven rebound. He elaborated, "The $4,400 level has played a pivotal role over the past year. Between late February and late March, it served as a significant support zone. After gold broke above this level in June, it has been a key support and resistance pivot point all year and still holds considerable psychological importance. On the daily chart, gold dipped below $4,300 but did not sustain that decline, which looks like a false breakdown — a constructive signal."

Caution Advised Before Fed Meeting; Two Inflation Drivers Shape Policy Path

When asked about gold positioning ahead of the Fed decision, Colombo advised caution but maintained an overall optimistic outlook for post-meeting performance. He explained, "Generally, I prefer not to take a directional bet ahead of such a major binary event, as I don't have an information edge in these situations. However, I expect a 'buy-the-fact' recovery once the decision is announced. The rate hike expectation has already been priced in for months, especially following last Friday's CPI release. The market has been endlessly speculating on whether the Fed will hike — it's time to get it over with and remove the uncertainty."

He added, "Perhaps the Fed should just hike, as it would leave room for future rate cuts. Current policy is already lagging the economic reality, and a 25 to 50 basis point increase would be appropriate."

Colombo also pointed out that this inflation cycle has multiple origins. Part of it stems from supply-side shocks, such as geopolitical tensions driving up energy prices. However, there are other drivers at play, and the Fed will eventually need to respond. He stated, "Energy-driven inflation will gradually show up in CPI data, but this type of inflation is not purely monetary driven, and policy tools have limited effect on it. The other force is AI-driven inflation. Major cloud providers are pouring trillions of dollars into computing infrastructure, pushing up prices for chips, electronic components, and data center building materials. This is also a significant source of inflation that monetary policy can actually address."

He drew a parallel between the current data center construction boom and the housing market two decades ago. "During the housing bubble, massive construction activity drove up prices for copper and other raw materials, which eventually fed into inflation data. The subsequent Fed rate hikes then pricked that asset boom. This type of inflation is exactly what monetary policy is designed to manage."

Two Scenarios After the Fed Decision; Closing Above $4,400 Unlocks Upside

Colombo predicts that following the FOMC decision, a rate hike would lead to a mild gain in gold, while holding rates steady would trigger a more substantial rally. "The key confirmation signal for a stronger move is gold convincingly closing above $4,400. Whether it's a relief rally from a hike or a rally from no hike, I want to see a daily close above that level. Once that happens, gold could target $5,000 in the coming months. Ideally, we'd see a solid daily close, significantly higher futures trading volume, and similar strength in gold ETFs and mining stocks. Increased volume suggests institutional participation, which would support a sustained uptrend."

He further explained, "If these conditions are met, gold would break above the previous high from late August and continue its advance, with the next objective set at $5,000 per ounce."

Conclusion

In summary, this Fed meeting is a critical juncture for short-term gold price action. The market has already pre-priced the rate hike, and the confirmation of that move could actually release downward pressure and spark a recovery. If the Fed opts for a pause, the upside potential for gold is even greater. Jesse Colombo is closely watching for a daily close above the $4,400 level, coupled with supportive volume dynamics. The structural inflation driven by AI computing expansion, combined with energy supply disruptions, will continue to test the Fed's policy choices and ultimately determine gold's medium-to-long-term upside. With short-term risk around the decision elevated, investors should wait for confirming price and volume signals to validate the trend.

Spot Gold Daily Chart Source: Yihuitong

As of 10:02 Beijing Time on September 16, Spot Gold was trading at $4,284.24 per ounce.