After The Dovish Fed, Gold Investors Need To Watch G20 Headlines - FXTM
(Kitco News) - Although gold prices have pushed to within striking distance of $1,400, a level not seen since mid-2013, there is still one risk that investors need to keep an eye on, according to one market analyst.
The gold price is seeing its best daily gains in two years with prices up nearly 3% on the day, last trading at $1,389.20 an ounce, after the Federal Reserve left the door wide open to looser monetary policy. However, Lukman Otunuga, research analyst at FXTM said that the timing of central bank’s expected rate cut remains an uncertainty and risk for the market.
“Expectations are high that the anticipated interest rate cut from the Fed could occur as early as July, but there is the possibility that it might not occur as soon as financial markets are hoping for,’ he said.
The CME FedWatch Tool is pricing in a 100% chance of a rate hike in July and markets are starting to anticipate the possibility of a 50 basis point move.
In a note to clients, Otunuga said that he is bullish on gold and sees prices pushing to $1,400 an ounce in the near-term; however next weekend’s Group of 20 meeting, a gathering of leaders and central banks of the 20 largest countries in the world, could create some volatility in the marketplace.
Gold has performed well this past month due to rising fears of a recession because of escalating trade tensions between the U.S. and China.
“If the United States and China do find a resolution to the long-standing trade tensions, this will cause a rapid shift in the economic outlook and could even mean that the Federal Reserve throws the keys to lower US interest rates out of the fast-moving car,” said Otunuga. “This is a potential outcome that can very well become frightening and represent a significant risk to global equity markets, when considering how confident everyone has become today that the Fed will be cutting US interest rates.”
Although the G20 poses a risk for financial markets and gold, Otunuga said that the yellow metal’s technical outlook is bullish. He added that expectations of a weaker dollar, due to falling interest rates, will continue to support gold in the near-term.
“Appetite towards the Dollar is weakening at lightning speed on market confidence that the Federal Reserve will be cutting interest rates,” he said. “The [U.S. dollar Index] is likely to sink towards 96.50 in the near-term as investors attack the Dollar.”