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What's Next For Gold After Post-Fed Jump?

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What’s Next For Gold After Post-Fed Jump?

(Kitco News) - Following impressive post-Fed gold gains on Wednesday, the precious metal has a chance to break out of its narrow trading range on the upside, said chief economist at ABC Bullion.

The yellow metal followed a well-learned trading pattern after the Federal Reserve’s decision to raise rates by 25 basis points to a range between 1.50% and 1.75%, Jordan Eliseo told Kitco News on Thursday.

“Gold replayed a familiar pattern on Wednesday — easing a little bit in the lead up to the Fed meeting and then jumping higher after the rate hike was pushed through,” Eliseo said.

This pattern was clearly visible after the December 2015, December 2016 and a couple of 2017 rate hikes, Eliseo pointed out.

Gold’s rally on Wednesday was not a surprise, but the magnitude of the “quite impressive” price jump was, according to the chief economist.

“Gold is essentially up $15, it’s a pretty significant move to rally just over 1%,” Eliseo said.

April Comex gold futures were last seen at $1,331.10, up 0.73% on the day, after trading above $1,336 on Wednesday. 

The increase in the gold price points to a market doubting the Fed’s intentions to hike aggressively this year, Eliseo explained.

“If you look at how much tightening is already priced into the market based on the Fed’s dot plots, gold is well positioned even if the Fed does hike rates at least another two times this year,” he noted.

Wednesday’s FOMC press conference was the first one for the new Fed Chair Jerome Powell, but it didn’t seem to matter to the markets, added ABC Bullion’s chief economist.

“As much as we love to obsess around the ability of a particular person to drive the market, it’s not about who sits as the chair, but the decisions the Fed makes, the rationale [the committee] gives for making them, and the projections for the future.”

The next big item on the agenda this week will be the U.S. Durable Goods Orders report from February, noted Eliseo. “If we see a pickup in volatility in financial markets or if there’s any economic data that will suggest that the Fed can’t hike as much as they’d like to, it will be bullish for gold.”

Trade policy can also impact gold in the near future, if the rhetoric around protectionism intensifies in the U.S., Europe or China.

“That’s going to decrease people’s confidence in the global growth projections and probably be positive for gold. It could well be a driver, but it remans to be seen what actually gets said and how markets react,” Eliseo said.

The levels traders should watch in the near term are $1,350 on the upside and $1,280 on the downside.
“Gold needs to go $1,330-$1,350 before people will get more aggressive. The volatility in gold has been incredibly low lately. We’ve seen it stuck between $1,300 and $1,340-50 mark,” Eliseo stated. “On the downside, we’ll have to drop below $1,280 before we see a major move.”

For the year, Eliseo’s outlook is positive, with the upside potential of $1,450-$1,500.

“A very reasonable return would be 10-15% rally for the year. I can easily see gold touching that target, but whether or not the metal can finish the year there, I am not so confident,” he said. “Something would need to go drastically wrong with financial markets or the economy for gold to go much higher than that.”

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.