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Gold price spike to continue on US Fed stance

Publication Date: 20 Jun 2019 - By Gaurav S. By Gaurav S.
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FX & Rates Macro Commodity FX Global

Gold futures have burst through the $1,347-$1,375 resistance bracket, following Wednesday’s (19 June) US Federal Reserve meeting to multi-year highs.  

At 11:16 BST on Thursday (20 June), the Comex Gold front-month futures contract was trading at $1,386 an ounce, up $37.20 or +2.76%, just shy of its 52-week overnight high of $1,397, and its highest level since 2014, as the prospect of a fresh round of US monetary policy easing became a reality.

Further upside looks very likely, after the Fed has indicated no immediate movement on interest rates, but hinted that a rate cut might well be on the immediate horizon.

The market is pricing in a 100% chance of a rate cut in July, up from an 82% chance before the meeting, according to analysts at Société Générale. The chance of three cuts between now and Christmas is now 70%, compared to 47% before the meeting.

In a note to clients, Kit Juckes, Head of FX at Société Générale, said: “Fed policymaker justified the move on the back of benign inflation, while their economic assessment is reasonably upbeat. That was perceived an invitation to buy bonds, equities and any currency other than the dollar.”

Most of all, given how little the market likes other major currencies, this was an invitation to buy gold.

“Gold has tracked US real yields (inversely) much more closely than the Dollar Index has in recent years and TIPS yields are falling fast. The dollar has more growth and more interest rate protection than any other G10 currency, but the President wants it weaker and the Fed is helping (though Chair Powell won't get any thanks from the White House). So gold, the anti-dollar, is on fire.”   

Disclosure:

I have no positions in any of the securities referenced in the contribution

I do not use any non-public, material information in this contribution

To the best of my knowledge, the views expressed in this contribution comply with UK law

I agree with the terms and conditions of ReachX

This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.

Gaurav S.

 

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