Gold Rebounds as the Dollar Loses its Luster

Gold prices moved higher on Thursday, rebounding as the dollar moved lower in the wake of the Fed’s statement following their monetary policy meeting. Prices rebounded off support near the 200-day moving average at 1,304. Resistance on the yellow metal is seen near the 10-day moving average at 1,319. Short-term momentum has turned positive as the fast-stochastic generated a crossover buy signal in oversold territory which reflects accelerating positive momentum and could lead to a rebound.

FOMC Left Interest Rates Unchanged

FOMC left the rates unchanged with a 1.625% mid-point for the 1.50% to 1.75% band. The vote was unanimous. The policy statement noted both overall and core inflation have moved close to 2 percent. Market-based measures of inflation compensation remain low. On the economy the Fed reiterated it’s been rising at a moderate rate. Job gains remained strong, while growth in household spending moderate from its strong Q4 pace. Also, business investment continued to grow “strongly.” The FOMC also reiterated it expects further gradual adjustments in the stance of monetary policy. Inflation on a 12-month basis is expected to run near the Committee’s symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced. While the statement was expected dollar bulls were hoping for a more hawkish fed.

Eurozone HICP inflation fell back

Eurozone HICP inflation fell back to just 1.2% year over year in April, from 1.3% year over year in the previous month. This confirmed that the uptick in March was mainly due to base effects from the earlier timing of Easter, which lifted holiday related prices. National data already indicated that expectations for a steady headline rate in April would turn out to be too optimistic. More importantly core inflation fell back to just 0.7% year over year from 1.0% year over year. Again, the Easter effect is partly to blame, with services price inflation falling to just 1.0% year over year from 1.5% year over year in the previous month and against that background our medium term inflation outlook has not changed and we don’t expect the central bank to scrap the intended exit from QE.