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Two Reasons that gold moved Higher

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Gold had an exceptional day, breaking the strong price declines gold had last week. Although it closed twenty dollars off of last night’s high of 1612.10, it still had managed to gain $23.50, with April gold closing at $1590.

It was not one but two primary reasons that we saw such a strong move in gold. The first was statements made by many global central-banks. Also the belief that the Federal Reserve’s monetary policy will be revised and announced at their next FOMC meeting to be held on March 18. Previously according to the Fed’s dot plot, they had planned to keep interest rates unchanged throughout the entire year of 2020. However recently many analysts have been on record stating that the Federal Reserve will revise that monetary policy to now include rate cuts.

According to the CME’s FedWatch tool there is a 100% probability that in March the Fed will reduce rates. Currently they are on record stating they planned to keep rates unchanged this year at 150 or 175 basis points (1.5% to 1.75 %). In fact, the prediction for March is that there is a 100% probability that rate will go to 75 basis points. More importantly is the FedWatch tool’s prediction for the April FOMC meeting could contain a second rate drop this year. With a 71.8% probability that  the Fed will lower rate to as low as 1%.

To see the FedWatch tool have a prediction of a 100% probability is extremely rare and strong, but to have three consecutive months that show consistent rate drops is an exceptionally sharp revision of their current monetary policy.

The sharp revision to a much more accommodative monetary policy by the Federal Reverse is in tandem with many other central banks. The Bank of Japan’s governor Haruhiko Kuroda stated on Monday “The central bank will make every effort to ensure stability in financial markets roiled by the coronavirus outbreak. The fact that the central banks have become so much more accommodative and rate reductions are planned in multiples rather than a single event underscores the second reason that gold move higher today.”

It is the common acceptance that the current corona virus outbreak will most certainly deepen until a vaccine is created. The longer that takes the higher the probability the current “epidemic” becomes a pandemic. Since currently we have seen a major effect on the global economy in terms of contraction should this occur it will have a devastating impact on global economic growth leading to lower stock prices globally, which would put the safe haven asset of gold as the most realistic and viable alternative place to park that investment capital.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer