Gold closes lower on the day, but higher on the week

U.S. equities and their action this week can be summed up in two words; extreme volatility. Yesterday market participants and traders hammered U.S. equities with the Dow Jones industrial average losing well over 5% on the day, with the other major indices sustaining deep drawdowns as well.

This selloff came one day after the conclusion of this month’s FOMC meeting. The statement released along with the press conference by Fed Chairman Jerome Powell signaled that they had no intent on raising interest rates in the near term. In fact, their comments suggested that interest rates will stay near zero until 2022.

The other major factor that came out of Wednesday’s FOMC meeting was that they were going to continue the purchase of treasuries and mortgage backed securities, which is labeled as quantitative easing. Chairman Powell stated that the amount of purchases will be based on how quickly the economy recovers using the word “infinite” in terms of the amount of capital they would use to add to their asset balance sheet.

Statements made by the Federal Reserve were interpreted as extremely bullish for the safe haven asset class, and gold benefited from the news as it traded approximately 3% higher on the week.

What is interesting is that typically the dovish news released by the Federal Reserve would also be extremely bullish for U.S. equities, which did not occur on this occasion. In fact, U.S. equities went from positive to negative during the release of the statement and press conference on Wednesday.

Yesterday’s selloff in U.S. equities could be considered a delayed reaction to the Fed statement, however many analysts have another explanation for yesterday’s decline of over 5% in the Dow.

Analysts have suggested that the selloff was largely due to the belief that the United States would succumb to a second wave of the Covid-19 pandemic, which turned the positive market sentiment into a cautiously bearish deamenor.

Today gold futures traded fractionally lower. As of 4:38 PM EST gold basis most active August contract is currently down by $2.50 and fixed at $1737.30. Oddly spot gold is trading higher on the day. Spot gold is currently fixed at $1729.65 after factoring in today’s gain of $2.26. What is noteworthy is that yesterday we had spot gold selling off to the tune of approximately $8, and simultaneously gold futures traded up and moderate gains. Today the opposite is occurring with spot gold trading higher on the day, and gold futures giving up approximately 0.15%.

Wishing you as always good trading and good health,