Fed Pauses Again

Gold prices are well bid today with the US Dollar starting the day in a muted fashion on the back of yesterday’s November FOMC meeting. The market had been expecting a “hawkish hold” from the Fed. However, the hold turned about to be a little less hawkish than some were expecting. The Fed signalled that with tighter financial conditions (due to elevated bond yields) set to weigh on economic activity, the Fed would continue to monitor and assess incoming data.

Traders Sense Fed Done with Tightening

The market read on this is that the Fed is likely done with tightening, while bond yields remain elevated, at least. Speaking at the post-meeting press conference Powell explained that “Slowing down is giving us, I think, a better sense of how much more we need to do, if we need to do more.” Powell had previously commented on the impact rising bond yields were having on financial conditions, essentially reducing the need for the Fed to tighten more, allowing it to keep its powder dry.

Powell Pushes Back Against Dot Plot

Perhaps the most interesting comments were those around the Fed’s dot plot forecasts. Speaking of the last update in September (which forecast one more hike), Powell said “That’s not like a plan that anybody’s agreed to, or that we will do.” The Fed chief went on to say, “I think the efficacy of the dot plot probably decays over the three-month period between that meeting and the next meeting.”

Bullish Gold View

Looking ahead now, US rate hike chances are fading fast unless we see a sharp uptick in inflation or a swift fall in bond yields. With that in mind, risks of a correction lower in USD are growing in the medium-term which should allow gold to rally through year end.

Technical Views

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XAUUSD

The rally in gold futures has seen the market breaking out above the 1973.51 level with a subsequent retest seeing the area holding as support for now. While this area holds, and with momentum studies bullish, the focus is on a fresh push higher with 2069.41 the next objective for bulls. 

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