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Gold moves higher after Fed statement and Powell’s Q&A

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Gold which had been trading lower throughout the trading session overseas last night, also traded lower just prior to the release of the Federal Reserve’s statement, and Chairman Jerome Powell’s Q&A session which followed ½ hour after the release of the statement.

Gold traded in negative territory to a low of $1708 this morning before beginning to trade higher. As of 4:34 PM EST gold futures, basis the most active June contract is currently trading up $7.30, and fixed at $1729.50.

The Federal Reserve ended this month’s FOMC meeting, and the Federal Open Market Committee pledging to maintain interest rates where they are, near zero for as long as needed. They also recommitted to using any and all tools available to help stabilize the economy which is currently facing the COVID-19 pandemic. This pandemic has caused a virtual shutdown of many businesses, and has kept global citizens in virtual lockdown.

With interest rates set at zero to 25 basis points, there is no way to lower the current rate without going negative. Because it is virtually impossible to lower rates more, they have reignited their quantitative easing program and increased their purchases of assets. Currently their balance sheet is at a record $6.6 trillion as of last week.

During the 2008 financial crisis they also use this method of purchasing mortgage-backed securities and other assets to help stabilize the contracting economy to the tune of $4.5 trillion. As they began to unwind quantitative easing in 2013, they also liquidated some of their assets and took their balance sheet to approximately $3.8 trillion.

The statement released today by the Federal Reserve along with the statements made by Chairman Powell can be considered extremely bullish for precious metals and bearish for the U.S. dollar. The precious metals across-the-board traded higher today with palladium gaining 2.3%, platinum gaining 1.6%, and silver gaining 1.58% on the day.

As reported in MarketWatch, Jameel Ahmad, global head of currency strategy and market research at FXTM said, “Overall, it’s still a volatile time for gold, with trading in the metal “likened to an animated version of a game of tug of war. It seems that buyers and sellers are each cancelling one another out.” However, he also said that, “There is still a case that gold should be performing even stronger than it is already doing when taking a look at the horrifying economic data releases that are coming out.”

It seems highly likely that gold will hold above $1700 per ounce, and it is my current belief that we could see gold challenge the recent high at $1765.

Wishing you as always good trading and good health,

Gary S. Wagner - Executive Producer