Gold calms somewhat after frenzied $40 rise in Fed meeting aftermath

(USAGOLD – 6/20-2019) – The gold market has calmed somewhat after the frenzied rise of yesterday afternoon. Its rapid ascent began at the conclusion of yesterday’s FOMC meeting and culminated a few hours later at five-year highs. Early yesterday afternoon the metal was trading at the $1345 level. By the end of the afternoon it had blown through the $1360 technical resistance mark to trade at $1385 – up $40 from the price prior to the Fed meeting and up $110 from where this rally began May 30th ($1276).  Silver – in catch-up mode – is up 25¢ at $15.40.

Gold’s price behavior suggests both a resumption of the uptrend in place before the meeting and new impetus from the strong undercurrent at the FOMC toward a more accommodative rate policy. Though the actual vote was 9-1 to keep rates where they are, the Fed’s dot-plot showed a divided committee on rates with eight of 17 members forecasting rate reductions by the end of 2019. The strongest reactions thus far have been in the safe-haven category – gold and U.S. Treasuries. Though much of gold’s impetus is the result of fresh positioning among speculative traders, we cannot rule out short-covering also playing an important role.

Michael McCarthy, chief market strategist at CMC Markets Asia Pacific, provided a workable summary of the forces currently at work in the gold market. “Easier monetary conditions are likely here to stay,” he said in a Bloomberg report last night. “The important aspect of this run higher is that it’s breaking through important technical resistance levels, so we’ve also got technical impetus adding to that fundamental shift in monetary conditions. Throw in a weakening U.S. dollar, we’ve got every reason to expect a good performance from gold.”

Additional note:  Though the Fed meeting provided the catalyst for gold’s rapid ascent, it does not fully explain its magnitude.  For an inkling of the fundamental forces undergirding gold’s rapid rise, we guide you to a post at Live Daily Newsletter page featuring Jeff Gundlach’s thinking on the subject. He talks about the Fed following the bond market instead of attempting to lead it – in other words, chasing rates higher rather than attempting to dictate them. We believe he is on to something. In our view, had the Fed opted to drop the Fed rate .25% (the typical increment raising and lowering) yesterday, it could have actually been read by the markets as restrictive. Instead, it stood aside meaning it was content to let the market dictate rates and the market, in turn, has a strong inclination to drive rates lower in the dash for safe havens. In a world in which interest rates look to be trending back toward the zero bound, gold is an asset that not only provides a safe haven and store of value, but also the potential for upside appreciation. That attribute is not likely to be lost on investors around the world – including those who manage large investment funds.

Quote of the Day
“[Y]ou should have it [gold] because you never know what our political leaders are going to do. . . Gold keeps its intrinsic value better than anything else. When you see the nominal price change, that’s not the value of gold changing, that’s the value of the dollar or whatever currency you’re talking about, changing in value. Gold is the constant, like the North Star. Yes, you should have it, a piece of it, just for peace of mind.” – Steve Forbes, Forbes Magazine (GoldSeek interview)

Chart of the Day

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