Gold Indifferent After Fed Raises Rates
Today’s Spotlight Market
Gold futures reacted negatively to yesterday?s FOMC rate decision, but remained firmer than many would have expected. The Fed had made a slightly stronger statement on closing the door on the zero interest rate era, but not only raising interest rates, but also increasing the repo cap to unlimited. That removes virtually all obstacles for the Fed being able to actually remove liquidity from the market. Some viewed the FOMC statement as dovish because of the suggestion that rates will increase gradually, but this may simply be a case where the Federal Reserve does not want to rock the boat too much. The central bank had raised interest rates for the first time in nine years and inflation is a non-factor at the moment.
Fundamentals
Gold traders have been bracing for a rate hike, so the market did not react very strongly to the news yesterday. The action of the Fed do give traders a bit of a mixed view. On one hand, the FOMC statement does not convey a sense of urgency in raising interest rates. On the other hand, the elimination of the repo cap suggests that the bank is serious about getting higher effective interest rates out there and curtailing liquidity. While the FOMC rate decision did not hurt Gold, the lack of fresh buying and soft physical demand for the metal may. ETFs may have been liquidators ahead of the meeting and there is very little investment demand for the metal at the present moment. The 8% percent global increase in Gold demand in Q3 may be more of an aberration rather than the start of a trend.
Technical Notes? -? View Today’s Chart
Turning to the chart, we see the February Gold contract regressing after testing the 1085.00 resistance level. Prices have tested support near the 1050.00 support level in early trading. A close below 1050.00 may result in a test of the $1,000 price level.
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