The Fed Boosts Gold, Oil, Stocks
The federal reserve came out and noted that they were expecting just two rate hikes instead of the four originally projected for 2016.
What does this mean?
While some of the world is holding negative interest rates (Japan) the U.S. is trying to make things “normal” again. Atleast as normal as normal can be.
The markets took a liking to the slowing of rising interest rates as the S&P had a turnaround day ending at 2027 and close to 2016 highs. Gold soured nearly 3% and crude oil rallied from $36.61 to $39.00 (crude did get a lift from the inventory report as well which showed lower inventories than expected).
Here’s a complete breakdown of gold and the effect the Fed and the Dollar have on the gold spot
It looks like the Federal Reserve told gold investors what they wanted to hear.
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After futures for the metal settled on Wednesday, the U.S. central bank left interest rates unchanged and projected just two rate increases for this year, down from the four it forecast in December.
That’s good news for gold GCJ6, which had tallied declines in seven of the last eight trading sessions. Higher rates tend to boost the dollar DXY, pressuring dollar-denominated prices for gold, and dull demand for the metal, which doesn’t bear a yield.
“It seems the headwinds for gold may have abated and the trajectory of the next couple of quarters may be neutral to positive,” said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management in Seattle.
After the U.S. central bank’s statement was released Wednesday, futures prices for the metal rallied past $1,260 an ounce in electronic trading, poised to wipe out the losses gold suffered over the past three trading sessions.
“Somewhat to my surprise, the Fed managed to walk a fine line” in its decision and policy statement, “but with a slight tilt to the dovish side,” said Brien Lundin, editor of Gold Newsletter.
The Fed statement noted mixed economic data but highlighted the recent strong increases in core inflation measures, which exclude food and energy prices. “Inflation picked up in recent months,” the Fed said.
“Economic growth still looks OK, but concerns about global growth appear to be leading the Fed to maintain a much lower than previously expected trajectory,” said Haworth.
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Lundin believes that the recent U.S. economic data were actually supportive of a rate increase.
Still, the Fed recognized in its policy statement that the real danger has been the “exogenous effects of global economic weakness and deflation,” he said. “This is the big potential driver for gold.”
Lundin pointed out that while the U.S. is “attempting to stand alone in its supposed tightening,” other major economies are pursuing monetary easing.
Earlier this month, the European Central Bank moved to cut negative rates further and expand its asset-buying program, while the Bank of Japan left its monetary policy unchanged and downgraded its view of the economy.
‘Continued low or negative rates around the world, coupled with a higher-than-usual risk environment, could plausibly nudge gold back towards’ the $1,400 level.
Katrina Lamb, MV Financial
“Continued low or negative rates around the world, coupled with a higher-than-usual risk environment, could plausibly nudge gold back towards” the $1,400 level, said Katrina Lamb, head of investment strategy and research at MV Financial.
“On the other hand, better-than-expected U.S. growth could yet force the Fed’s hand, in which case we would not be surprised to see the metal lose traction” and perhaps even test its December 2015 lows” said Lamb. Prices dipped under $1,050 in December.