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Gold stages a relief rally after the Fed announces a 3/4% rate hike

Commentaries & Views

As anticipated the Federal Reserve concluded the July FOMC meeting with an announcement that they will raise rates by 75 basis points or 3/4%. While this was overwhelmingly expected as opposed to a larger 1% rate hike, there were subtle changes in the statement as well as comments made by Chairman Powell during the press conference.

A change in the Chairman's tone

In essence, for the first time in any press conference this year, the chairman expressed a slightly more dovish tone than previously expressed regarding rate hikes. While he continued to toe the line that all future decisions will be data-dependent, he added for the first time since the Fed began to raise rates that the Federal Reserve feels it is 'likely appropriate to slow increases at some point. That being said, he offered no real insight as to a timeline of when this might occur.

With the second quarter GDP report coming out tomorrow and advanced estimates by the Atlanta Federal Reserve predicting an economic contraction of 1.6%,  Chairman Powell put a spin on the current economic outlook.

"I do not think that the U.S. is currently in a recession, and the reason is there are just too many areas of the economy that are performing too well. To be sure, growth is slowing for reasons that we understand. Growth was exceptionally high last year, 5.5%. We would have expected growth to slow. There's also more slowing going on now."

The chairman did add that preliminary GDP numbers should be taken with a grain of salt.

Gold reacts with positive price gains and the dollar weakens

Gold traded to a low of $1709.10 in overseas trading before the release of today's report. Gold began to gain strength immediately following the release of the report and strengthened as Powell spoke during the press conference. Gold futures basis the most active August contract traded to a high of $1739.60.

As of 4:43 PM, EDT August gold is currently fixed at $1733.10 a net gain of $15.40 or 0.90%. Concurrently, the dollar declined in value today giving up 0.68% or 0.729 points with the dollar index currently fixed at 106.315.

Tomorrow the financial markets will react to the latest numbers on the second quarter GDP, this will be the next opportunity for traders to factor in the most recent data about the current strength of the economy. The Federal Reserve will not hold another Open Market Committee meeting until November 2 which means that there will be additional PCE and CPI inflation reports to determine their furure forward guidance.

This will allow market participants to factor in additional reports as they become available into current pricing without the added pressure of upcoming rate hikes by the Federal Reserve.

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Wishing you as always good trading,

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