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Are Gold Investors Prepared For A Less Dovish Fed? - Saxo Bank

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(Kitco News) - Gold investors might want to take a more defensive position as the Federal Open Market Committee kicks off the first day of its two-day monetary policy meeting, according to one commodity analyst.

The gold market is benefiting Tuesday from a weaker U.S. dollar and falling bond yields as markets anticipate dovish sentiment from the U.S. central bank, according to Ole Hansen, head of commodity strategy. However, he warned that markets might be expecting too much.

April gold futures last traded at $1,307.20 an ounce, up 0.44% on the day.

“The expectations for what Powell and company decide to do have become an almost foregone conclusion -- a development which could leave the market exposed should they fail to deliver,” he said.

Hansen said that there are three issues he is watching for in Wednesday’s monetary policy decision, updated projections and ensuing press conference: for the central bank to hold interest rates steady, announcing plans to end the balance-sheet reduction plan and to lower interest-rate expectations for the year.

“Anything but a lowering of the projections for the number of future rate hikes from the current two will be taken as negative. Not least considering the current market expectations – using Fed funds futures – which [have] seen the probability of a rate cut before year-end rise to 26%,” he said.

Hansen added that the rally in equity markets, which has seen its best start to the year in nearly 30 years, could take some of the dovish pressure on the central bank. The S&P 500 Index last traded at 2,847 points, up 13% since the start of the year.

“The reduced stress across global financial markets following weeks of surging stocks have potentially reduced the FOMC’s willingness to play ball with market expectations,” he said.

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