Gold vs. FOMC

Thursday, 6th April 2017 15:16 - by Rajan Dhall

The markets seem to have perceived yesterday's FOMC comments as hawkish, I for one am not too sure about this as the FFR futures markets are only really pricing in one more rate hike for this year despite Fed members indicating more. (Fed's Williams's stating his base case is for 3 hikes in total this year)

Another key thing to consider for gold that may not be traditionally looked at, is some of the US data. We are looking out for non farm payrolls which always inspires volatility but I will be looking out for average wage increases. If inflation is improving, Jobless numbers are going down and average wages are rising it would be much easier for the Fed to raise rates, its actually their ideal scenario. If any of these requirements moves out of line then we can expect a shift up in gold prices as there is a inverse correlation between the two.

Looking at the chart now, you can see it has been bullish since the start of the year, this is due to the fact the markets have been positioning themselves for the possibility that confidence is overpriced. The last rate hike was considered a 'dovish hike' and Trumps policies look to have been met with some strong opposition.  There are some key levels on the chart to be aware of; USD 1250 seems to be a sticking point for price but whenever price hits USD 1251.50 it meets sellers and moves back toward the mean value of around the USD 1210 area. USD 1205 looks to be a strong area of support and in current conditions is a firm low. I am also keeping an eye on the rising trendline as gold is a very technical asset class. Moving forward if sentiment is subdued and stock markets fall off a cliff, I will be looking up toward the USD 1291 resistance level, but if the data improves and warrants more than one rate hike then USD 1200 will come into play once again. Trumps Tax reform plans will also play a part, as this could be a catalyst for stock markets to rise again, so if the bill is met with unanimous support sellers could come back into the market to shift funds over to stocks therefore sending gold down.

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.