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Gold Prices See Its Best Gains In A Month After Fed Disappoints Dollar Bulls

Kitco News

(Kitco News) - The gold market pushed to a two-week high, posting its best gains since last month’s equity market meltdown as the Federal Reserve disappointed U.S. dollar bulls after projecting only three rate hikes this year, according to some analysts.

The gold market is trading just down from session highs, benefiting from the fact that the Federal Reserve is in no hurry to raise interest rates faster than what is already expected.  April gold futures last traded at $1,332.80 an ounce, up almost 1.59% on the day. At one point, following the Federal Reserve’s monetary policy decision, gold prices were up almost 2% on the day. Gold was up more than 1% on the day ahead of the decision.

Andrew Grantham, senior economist at CIBC World Markets, said that gold is benefiting from a weaker U.S. dollar after bullish investors bet that the Federal Reserve would signal four rate hikes this year.

“I would describe the Fed as optimistic but they were not more hawkish and that is disappointing U.S. dollar bulls,” he said. “Going into this meeting we thought it was going to be difficult for the median forecast to rise to four rate hikes.”

Colin Cieszynski, chief market strategist at SIA Wealth Management, said that because the central bank was not as hawkish as expected, U.S. dollar traders are now focusing on the risk that rising government debt will have on economic growth.

“If the government’s stimulus efforts don’t push growth above 3% then there is no reason for the fed to accelerate the pace of rate hikes that they are already doing,” he said. “That is going to hurt the U.S. dollar.”

During his first press conference, newly minted Federal Reserve Chairman Jerome Powell said that he thought it was unlikely that stimulus measures like the government December tax cut could boost growth above 3%. Powell added that the U.S. economy would need to see a significant increase in productivity to push growth above 3%.

The central bank’s updated forecasts sees the U.S. economy growing by 2.7% this year.

Cieszynski said that he estimates gold pushing higher in the near-term, but maybe not having enough momentum to break out of its near-term range. He noted that ultimately the central bank still isn’t very dovish as it expects to raise interest rates for the next three years.

He added that gold prices need to push above $1,360 an ounce to signal a break of its near-term range.

“If $1,360 breaks then we have a whole new ball game but until that happens the market is just testing the top of its range,” he said. “The Fed wasn’t hawkish enough to drive gold prices down but I also don’t think it was dovish enough to drive prices out of its trading range.”

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