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Gold Prices Spike As Fed Indicates That They Will Stay The Course

Commentaries & Views

The much-anticipated FOMC meeting concluded today, resulting in an announcement that they will raise the Fed funds rate by 25 basis points (1/4%). This was in complete alignment with existing market sentiment. They also announced that they would stay the course and are projecting a total of two more rate hikes this year, for a total of three rate hikes in 2018.

Although the 25-basis point rate hike this morning was widely anticipated, and for the most part factored into existing market sentiment, market participants concerns about four rate hikes this year were alleviated.

The fact that the Fed indicated it would stay the course presented a much more dovish tone then many market participants feared. The net result of this more dovish tone was a tremendous upside spike in gold and silver pricing, along with downside pressure on the U.S. dollar.

While on the surface it might appear as though today’s $20 plus gain in gold was a little overdone given that the Federal Reserve did exactly what they indicated in earlier statements, the recent exaggerated selling pressure in gold resulted in an extremely oversold market.

This was the result of market participants positioning themselves for a more hawkish tone from the Federal Reserve and when that did not emerge a combination of short covering and repositioning moved gold prices substantially higher.

As of 4:00 PM Eastern standard time, gold continues to trade sharply higher, with gold futures currently up $21.50 at $1,333.40. Spot gold is presently fixed at $1,331.80, which is a net gain of $21.00 on the day.

Today’s sharply higher prices are composed of equal gains resulting from a weaker U.S. dollar and traders bidding up gold pricing. According to the Kitco Gold Index, dollar weakness is accounting for $10.50 (+0.80%) of today’s move, with the remaining $10.50 (+0.80%) gain directly attributable to buying.

One interesting facet of today’s sharply higher pricing was the fact that gold was trading up $15 before the Fed announcement was made. Today’s upside move truly began in overseas trading, as well as this morning in the U.S.

A critical difference between how traders reacted to the Statement made by the Federal Reserve today and reactions to other FOMC meetings was how traders were positioned prior to the conclusion of the announcement. Although gold prices spiked following the Fed announcement, the net change from gold pricing just before the conclusion was only about six dollars.

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Wishing you as always, good trading,

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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