After the Fed – US Dollar Declines and Precious Metals Rally

After only one day since the conclusion of this month’s FOMC meeting, not only are market participants digesting the most recent information by the Fed, they are also reacting to the information presented to them.

As we have spoken about over the last week, it was widely accepted as an absolute certainty that the net result of this FOMC meeting would be an interest rate increase. Considering that this rate hike is only the third since the 2008 economic meltdown, it would be an understatement to say that the Fed’s monetary policy has been accommodative. Therefore, most analysts, including myself, believe that yesterday’s rate hike was fully baked or factored into current market pricing.

At the same time, there was an uncertainty as to the future direction of the Fed. Most importantly, the question remains as to whether or not their underlining tone would become more aggressive now that the economy has really begun to heat up. This uncertainty led to some real concerns that Federal Reserve members would take a more hawkish or aggressive stance either through an increase in the amount of rate hikes scheduled this year or the amount of the increases.

Fed Fears Subside

These concerns and fears were certainly put to rest through comments made during Janet Yellen’s post meeting statement, as well as her answers to questions posed by reporters immediately following her statement. Her tone and demeanor were, as always, carefully scripted and deeply insightful. Her cautious use of words and comments made it clear that the current monetary policy of the Federal Reserve will remain accommodative, data dependent, and most importantly, contain gradual changes in regards to interest rate increases. Her comments also conveyed the high extent of transparency and clarity that is exactly what market participants need to feel more comfortable about America’s economic future.

Dramatic Selloff in the US Dollar Index

The net result of the Fed statements made yesterday was the implication that the Federal Reserve will continue to provide an accommodative monetary backdrop. In layman’s terms, this means there is still cheap money to be had for investments. However, this cheap money will now cost an additional 25 basis points. This dovish tone was exactly what some market participants wanted to hear and as such, we saw tremendous pressure on the US Dollar Index, which has lost 1.34% of value in the last two trading days.

Gold Pricing Moves Dramatically Higher

Gold, which had been trading just above $1200 per ounce, surged dramatically upon the news that the Fed was raising rates by only 25 basis points. Because the Fed maintained its current accommodative policy, April Comex futures, currently trading at 1226, have gained approximately 2% over the last two days, moving to a two-week high.

Our current technical studies indicate that our support levels in gold are at 1200 and then again at 1220. Our studies also indicate resistance at 1231 and 1250, with major resistance at 1264.

Wishing you as always, good trading,