FOMC Backtracks on Rate Outlook, Gold Rallies
Today’s Spotlight Market
Gold futures had a late day surge after the FOMC had released the minutes of their last meeting. The minutes of the Federal Reserve’s March meeting suggested that several policy makers may have exaggerated the pace of the interest rate tightening. According to the minutes, “several participants noted that the increase in median projection overstated the shift in the projections.” In the near term, this can certainly be seen as positive. However, over the longer term, a murky economic outlook suggests growth could be slower, thus cooling demand for inflationary demand for the metal. Yet, the economic outlook is not dire enough to trigger defensive buying.
Fundamentals
While there is no safe haven buying based on economic fear, the situation in the Ukraine remains supportive of Gold prices. There have been worries over of the fact that economic indicators been somewhat disappointing of late. Some banks have been chalking up some of the skittishness in economic reports to the cold weather. The backtracking by the Fed with regard to future interest rate policy may lead to more optimism. Many of the bearish bets out there have been based on the Fed raising interest rates prematurely. Today’s acknowledgement by the Fed itself that raising interest rates prior to the economy getting back on its feet without the need for the interest rate crutch. The US Dollar Index traded down to the lowest level since mid-March and threatens to break through near-term support around the 79.50 mark. A downside breakout in the Dollar Index could energize the bull camp.
Technical Notes
Turning to the chart, we see the August Gold contract creeping above the 1300 level. However prices did fall short of the 20- and 50-day moving averages. Also, while yesterday’s candlestick is not a textbook spinning top, it could be interpreted as a possible near-term reversal signal favoring the bear camp. The recent rise in Gold price can be at least partially attributed to oversold technical conditions. The RSI has now rebounded from oversold levels. The momentum indicator has continued to move lower, despite the rebound in prices, which may be interpreted as being possibly bearish.
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