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Price of Gold Fundamental Daily Forecast – Weakens After Fed Comes in Less-Dovish Than Expected

By:
James Hyerczyk
Published: Jan 27, 2021, 20:32 UTC

Since 10-year Treasury yields inched higher after the Fed announcement, investors didn’t see the news as particularly dovish.

Gold

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Gold futures are trading about $5.00 lower since the Federal Reserve made its monetary policy announcements at 19:00 GMT. The market is also up about $11.00 from its intraday low at $1832.40. Immediately after the Fed news, the market shot up at $1855.70 before retreating to $1843.00.

At 20:09 GMT, April Comex gold futures are trading $1843.70, down $11.10 or -0.60%.

I mention the price action because the business news websites want you to believe the Fed drove the gold market to a more than one-week low on Wednesday, but that’s not how it happened. This is just further evidence that you have to match the news to the price swings in order to understand the catalyst driving the price action.

CNBC wrote, “Gold prices fell to a more than one-week low on Wednesday, pressured by concerns over the U.S. stimulus bill and strength in the dollar after the Federal Reserve left interest rates unchanged.”

Gold fell to its low of the session at 15:00 GMT at $1832.40. When the Fed released its statement at 19:00 GMT, April Comex gold was trading $1848.50. At 19:05 GMT, the market hit a high of $1851.40 before tumbling to $1842.70 at 20:15 GMT.

Dollar Rises on Economic Impact of COVID-19 Pandemic Fears; ECB Warning

The U.S. Dollar is up on Wednesday as investors turned more cautious on riskier assets amid growing worries about the economic impact of the COVID-19 pandemic and as a downward revision to Germany’s growth forecast weighed on the Euro.

The Euro was pressured after the German government on Wednesday slashed its growth forecast for Europe’s largest economy to 3% this year, a sharp revision from last autumn’s estimate of 4.4%, caused by a second coronavirus lockdown.

The single-currency was also under pressure after a European Central Bank official said the bank was monitoring the currency closely. ECB governing council member Klaas Knot said the central bank has room to cut its deposit rate further, should it be necessary to improve financing conditions and reach its inflation target.

Knot’s comment constituted the most explicit hit to date from an ECB policymaker about the possibility of a rate cut to stem a rally in the Euro – a move that seemed highly unlikely until recently.

Fed Stays Consistent With Market Expectations

The policymaking Federal Open Market Committee said Wednesday it was keeping its benchmark short-term borrowing rate anchored near zero and maintaining an asset purchasing program that is seeing the Fed buy at least $120 billion a month.

Short-Term Forecast

Easy monetary policy tends to weigh on government bond yields, increasing the appeal of non-yielding gold. Since 10-year Treasury yields inched higher after the Fed announcement, investors didn’t see the news as particularly dovish.

In order to attract new buyers into gold, the Fed will need to adopt a more dovish tone, which will push yields back below 1%. Furthermore, if Biden manages to get his $1.9 trillion stimulus package passed by Congress, inflation could shoot higher. This would likely drive Treasury yields higher, and keep the downward pressure on gold.

For a look at all of today’s economic events, check out our economic calendar.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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