Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Does Fed Know Something Gold Investors Do Not Know?

Commodities / Gold & Silver 2019 Mar 21, 2019 - 03:15 PM GMT

By: Arkadiusz_Sieron

Commodities

The Fed doubled down on its dovish stance. What card will gold play now?

Fed Remains Patient

Yesterday, the FOMC published the monetary policy statement from its latest meeting that took place on March 19-20th. In line with the expectations, the US central bank unanimously kept its interest rates unchanged. The federal funds rate remained at the target range of 2.25 to 2.50 percent:

The Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent.


The inaction reflected the new patient approach adopted by the Fed in January. The US central bank also noted the slowdown in the US economic growth and some other indicators:

Information received since the Federal Open Market Committee met in January indicates that (…) growth of economic activity has slowed from its solid rate in the fourth quarter. (…) Recent indicators point to slower growth of household spending and business fixed investment in the first quarter.

Apart from these changes, the statement was virtually kept the same as it was in January. So, it should not significantly affect the gold market. However, it was accompanied by the new details about the balance sheet normalization, and the dot plot. Let’s now analyze them.

Slowdown in Balance Sheet’s Normalization

As a result of its previous discussions, the Fed published Balance Sheet Normalization Principles and Plans. The key changes are as follows:

• first, the US central banks slows down the pace of the decline in its holdings of Treasury securities over coming quarters, by reducing the cap on monthly redemptions from the current level of $30 billion to $15 billion beginning in May 2019;
• second, the Fed will end its balance sheet normalization as early as in September 2019;
• third, since October 2019, the Committee will reinvest principal payments received from agency debt and agency MBS in Treasury securities, subject to a maximum amount of $20 billion per month

All these changes mean that the Fed will soften its quantitative tightening. Apparently, the US central bank took heed of all the complaints about the Fed draining liquidity. The party in the risky assets will, thus, go on, which may be bad news for the yellow metal. On the other hand, gold may appreciate in tandem with the stock market. Moreover, more dovish Fed and weaker upward pressure on the interest rates should support gold.

Dramatic Shift in Dot Plot

The second biggest dovish surprise, next to the new Fed’s balance sheet policy, were the fresh Fed’s economic projections. The forecasts for GDP and inflation were slightly down, while that for the unemployment rate slightly up. But the real change was the dramatic shift in the dot plot. The median assessment of appropriate level of the federal funds rate was slashed from 2.9 to 2.4 percent in 2019, and from 3.1 to 2.6 percent in both 2020 and 2021. It means that now the Fed sees no hike this year and only one hike next year. It’s a really remarkable turn, as in just six months, the US central bank has gone from an outlook with interest rates in restrictive territory to a more neutral (some might even say accommodative) positioning. After such abrupt revisions, what kind of credibility does the Fed’s dot plot have left?

Implications for Gold

What does it all mean for gold? Well, the Fed surprised investors on a dovish side. The markets made their moves. While the bond yields declined, the US dollar predictably plunged against both the euro and the Japanese yen, as the charts below show.

Chart 1: USD/JPY exchange rate from March 19 to March 21, 2019

Chart 2: EUR/USD exchange rate from March 19 to March 21, 2019


So, the price of gold jumped. As one can see in the chart below, the yellow metal moved yesterday above $1,315.

Chart 3: Gold prices from March 19 to March 21, 2019.



More dovish Fed is a fundamental tailwind for the gold market. We have been repeating for a long time that the US monetary policy has reached its hawkish peak in 2018 and that this is why 2019 should not be as harsh to the precious metals as 2018 was. There is always a risk in repricing of the Fed’s interest rate path, but unless inflation significantly jumps, we consider it as low. Another risk is that the dovish Fed will support the stock market at the expense of the precious metals market. However, the reaction of the S&P 500 is far from euphoric, as the chart below clearly shows.

Chart 4: S&P 500 Index from March 18 to March 20, 2019.


It may suggest that the Fed’s bold reaction frightened investors. After all, it might be the case that if the US central bank doubles down on a dovish side, when the economy seems solid, it must know something disturbing about the economy the mere mortal does not know. The conclusion is that appeal of holding gold should not decrease – and it may even increase thanks to the lower bond yields and weaker greenback.

If you enjoyed the above analysis and would you like to know more about the gold ETFs and their impact on gold price, we invite you to read the April Market Overview report. If you're interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts . If you're not ready to subscribe at this time, we invite you to sign up for our gold newsletter and stay up-to-date with our latest free articles. It's free and you can unsubscribe anytime.

Arkadiusz Sieron
Sunshine Profits‘ Market Overview Editor

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Arkadiusz Sieron Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in