GOLD:Prices Rise as FED Reserve Signals Less Future Rate Hikes
Updated
Gold prices surged after the March 22 Federal Open Market Committee (FOMC) meeting, with the precious metal reaching a peak of $1,978. This was mainly due to the US Federal Reserve's indication that it would probably not raise rates as much as previously expected in the future, as tighter credit conditions caused by banking stress could bring down inflation. This news was viewed as bullish for gold as lower interest rates are favorable for the metal, which does not provide a return to holders, unlike cash or cash equivalents.
Although the Fed increased the Fed Funds Rate by a quarter of a percent to a target range of 4.75%-5.00%, in line with market expectations, this was already priced in by the markets. The Fed's Summary of Economic Projections (SEP) showed a lower-than-previous future rate hike trajectory in the dot plot, which further drove up the price of gold. The Chairman of the Federal Reserve, Jerome Powell, also suggested that the Fed may not need to raise rates as much as expected, given the credit crunch caused by the banking crisis.
The US Dollar weakened in response to Powell's statements since lower interest rates tend to have a negative impact on the currency. As gold is priced in dollars on international markets, a weaker dollar buys less gold, which resulted in a surge in the price of the precious metal.
Looking at the technical analysis of gold prices, it has recovered and risen in line with the dominant short-term uptrend. A continuation higher is probable, with a break above the $1,984 highs of the previous bar signaling an extension higher. The just-broken trendline is likely to present an initial target and resistance at $1,991, and the gold price will probably pullback at that level. However, an eventual rally all the way to the yearly highs at $2,009 is quite possible.
In conclusion, gold prices rose due to the Fed's dovish hike, which suggested that tighter credit conditions due to banking stress might do the job of bringing down inflation on its behalf. This caused gold prices to surge, as expectations of lower interest rates are seen as bullish for the metal.
Although the Fed increased the Fed Funds Rate by a quarter of a percent to a target range of 4.75%-5.00%, in line with market expectations, this was already priced in by the markets. The Fed's Summary of Economic Projections (SEP) showed a lower-than-previous future rate hike trajectory in the dot plot, which further drove up the price of gold. The Chairman of the Federal Reserve, Jerome Powell, also suggested that the Fed may not need to raise rates as much as expected, given the credit crunch caused by the banking crisis.
The US Dollar weakened in response to Powell's statements since lower interest rates tend to have a negative impact on the currency. As gold is priced in dollars on international markets, a weaker dollar buys less gold, which resulted in a surge in the price of the precious metal.
Looking at the technical analysis of gold prices, it has recovered and risen in line with the dominant short-term uptrend. A continuation higher is probable, with a break above the $1,984 highs of the previous bar signaling an extension higher. The just-broken trendline is likely to present an initial target and resistance at $1,991, and the gold price will probably pullback at that level. However, an eventual rally all the way to the yearly highs at $2,009 is quite possible.
In conclusion, gold prices rose due to the Fed's dovish hike, which suggested that tighter credit conditions due to banking stress might do the job of bringing down inflation on its behalf. This caused gold prices to surge, as expectations of lower interest rates are seen as bullish for the metal.
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