Will Gold Rally In January After The Fed Hike?

December as usual. Another Fed hike is behind us. Will we now see a rally in gold in January?

Fed Hiked But It Will Monitor Risks

Yesterday, the FOMC published the monetary policy statement from its latest meeting that took place on December 18th-19th. In line with the expectations, the US central bank raised the federal funds rate by 25 basis points to the target range of 2.25 to 2.50 percent (it was the ninth lift since 2015):

In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 2-1/4 to 2 1/2 percent.

In related actions, the Board of Governors also hiked the primary credit rate from 2.75 to 3.00 percent and the interest rate paid on required and excess reserve balances from 2.20 to 2.40 percent (the Fed raised it by just 20 basis points to get better control over the federal funds rate and keep it within the targeted range).

Besides the hikes, the statement was slightly changed from the November version. The overview of the economy is the same as previously. But there were two important modifications. First, the Fed officials included word “some” in their judgment (no longer an expectation – another change) about the necessity of further gradual hikes:

The Committee judges that some further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term.

The addition of that determiner might be seen as dovish signal. According to Cambridge dictionary, “some” means “an amount or number of something that is not stated or not known”. In theory, thus, that inclusion does not change anything, as the number of further hikes was previously not stated or even not known as well.

However, why should the Fed add a word if not for sending a signal? After all, the word “some” also means “small amount; a little.” We use “some” when we want to soften an expression: to some degree, somewhat, etc. Hence, the Fed may be preparing market participants for further hikes, but not for many of them, just some of them. This is good news for the gold market.

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