What Happens When Gold & The Dollar Trade In Tandem?

You would have thought that just a few days after the Federal Reserve decision that the markets would be ready to move on, but no traders remain stuck in place now trying to decide what the Federal Reserve will do at its October meeting. Speculators have become so one sided that they are missing other market events. The betting now is that the Federal Reserve won’t raise interest rates until 2016.

After reviewing all the information released by Fed policy makers on Thursday, traders who bet on the future path of the U.S. central bank’s key policy rate pushed back expectations of the first rate hike by one more meeting.

Traders put a 52% chance of a rate hike in January, one meeting later than was expected prior to the Fed’s decision to leave rates unchanged, according to CME FedWatch. The Fed is scheduled to meet Jan. 26-27. Before Thursday’s meeting, the odds had favored a December rate hike.

Analysts said there was doubt that the Fed would act in October because no news conference is planned, although the central bank could always call a news conference on short notice.

Investors don’t believe the Fed will hike in December because it is so close to Christmas and markets are less liquid, said Dan Greenhaus, chief strategist at BTIG.

However, Kim Chase, senior economist for BBVA Compass in Houston, predicted that the market would likely refocus on the possibility of a move at the Dec. 15-16 meeting.

The problem facing the Fed is that they cannot act quickly, the economy is steadily growing stronger it is like a locomotive chugging along, and the brakes cannot be applied quickly as results take a long time. If the Fed does not act early enough there could be long term implications, its like predicting an event in the future, when the future is not clear.

In the meantime the US dollar is at 95.23 gaining 73 points as the markets corrected after the sharp declines on Thursday. The dollar overall remains strong. Gold on the other hand added over $30 post the FOMC and continues to gain momentum. What can traders take away from a strong dollar and an ongoing gold rally? Gold ended the week at 1138.30. Silver followed gold’s moves to trade at 15.10 gaining 166 points on Friday while platinum added $14 to trade at 980.00 unable to break above the $1000 level.

Gold rose to a near three-week high on Friday as the Federal Reserve’s decision to leave US interest rates unchanged rattled investors’ outlook on the global economy and weighed on equity markets in developed economies. Gold eased $1 in the Asian session while the dollar eased 13 points to 95.23

The Fed kept interest rates unchanged on Thursday in a bow to worries about the global economy, financial market volatility and sluggish inflation at home. It left open the possibility of modest rate rises later this year.