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Federal Reserve To Embark On Monetary Policy 'U-Turn'

Kitco News

(Kitco News) - The Federal Reserve has started its first monetary policy meeting of the year, and according to one fund manager, it will be the latest central bank to signal a dovish shift in its monetary policy which will ultimately drive gold prices higher.

The gold market has pushed to its highest level in seven months as prices hold above $1,300 an ounce. April gold futures last traded at $1,314.70 an ounce, up 0.39% on the day.

Gold’s move come as the Federal Reserve is expected to strike a dovish tone in its monetary policy statement and in central bank chair Jerome Powell’s ensuing press conference. Central bank officials, including Powell, have been hesitant to signal further tightening in monetary policy following its December hike. In two events at the start of the year Powell said that because of low inflation pressures, the Federal Reserve can be “patient” on interest rate hikes. According to media reports, the central bank could also signal a slowdown in its balance-sheet reduction program, which Powell has previously described as on auto-pilot.

Ronald-Peter Stoeferle, fund manager at Incrementum AG

Ronald-Peter Stoeferle, fund manager at Incrementum AG and author of the annual In Gold We Trust report, said in a recent telephone interview with Kitco News that he is not surprised the central bank is looking to make a dovish shift in monetary policy.

“We’ve seen this monetary ‘U-Turn’ coming for a while now, since the start of the fourth quarter of last year,” he said. “The first central bank to act was the People’s Bank of China that lowered reserve requirements in October. The Federal Reserve is just the latest to join other central banks. It’s no coincidence that gold prices started to pick up momentum in the fourth quarter of last year.”

The Federal Reserve decision will be made a week after both The Bank of Japan and the European Central bank highlighted growing risks to the global economy.

Along with growing economic growth concerns, Stoeferle said that central banks will have difficulty tightening monetary policy as market volatility has risen along with investor jitters while market liquidity has shrunk.

Stoeferle noted that 2018 was the first time central banks tried to remove some liquidity from the market after a decade of stimulus.

“Central banks have tried to get out of this zero-interest-rate trap but they aren’t able to. The market is addicted to cheap liquidity and I don’t think that is going to change anytime soon. There is no way out for central banks caught in this trap,” he said. “Gold does very well in this environment.”

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.