Gold Prices React Favorably to Fed Statement

Gold is experiencing a modest rally today, with June futures currently trading up eight dollars at $1,313.60. This follows yesterday’s exciting move in which gold prices ticked up $10 within 30 minutes of the conclusion of the FOMC statement released by the Federal Reserve. These gains could not be sustained as prices moved back to unchanged by the closing bell.

As anticipated, the Federal Reserve stayed the course by keeping Federal funds rates unchanged. Expectations that there will be a total of three rate hikes this year also remain steadfast by the majority of analysts and economists. Although there are economists predicting a total of four rate hikes this year, in terms of consensus they are in the minority.

It is also widely believed that the next rate hike (the second this year) will be initiated in June and limited to a 25-basis point increase.

One fascinating facet of yesterday’s statement was the use of the word “symmetric” in reference to inflation. According to Bloomberg Markets, “Officials may have signaled their willingness to allow inflation to exceed their 2 percent goal somewhat by adding a reference to the “symmetric” nature of their target.”

The insertion of this word in reference to inflation signals the Fed’s willingness to have some flexibility in terms of their 2% target for inflation. Since the Fed is using a 2% inflationary target as an absolute trigger for rate hikes, yesterday’s statement signals a broader interpretation of inflationary pressures giving them more flexibility.

As reported in MarketWatch, Royce Mendes said, “Fed officials didn’t raise rates today, but did raise their assessment of inflationary trends. In what contained relatively few changes, the FOMC noted that inflation has moved close to its target and is expected to run near 2% over the medium term. If one word stands out in the text, it’s the reference to the committee’s ‘symmetric’ 2% inflation objective.”

Gold prices over the last two trading days have remained above an extremely critical support level based upon two technical indicators: the 200-day moving average and the 50% Fibonacci retracement level. Both indicators coincided at the same price point, which is just above $1,300 per ounce. The next level of strong support for gold is at $1,288, which is the 0.618% Fibonacci retracement.

Currently, there is minor resistance at $1,317, with major resistance at $1,330, which is the current price of the 50-day moving average. Although we are cautiously optimistic that gold prices will move higher, the brass ring remains at $1,370 per ounce; the highest point gold prices have ascended to since the multiyear correction ended at the end of 2015. At this point, gold has challenged that price level on multiple occasions, with each attempt unable to breach that ceiling.

Wishing you as always, good trading,