June 17 2021
Many market commentators, including me, had been critical of the US Federal Reserve and the wishy-washy use of transitory when describing the risk of inflationary pressures. How long is transitory who knew, and now who cares?
With decisive action and purpose, the Fed put us all in no doubt that US interest rates are going up! But not right now. The dot plots implied there are going to be two hikes by the end of 2023.
Will this change in FOMC policy signal the end of the Gold rally? I don’t think so.
In the past, the Dollar didn’t react until interest rates went up. A full two years after the Fed first signaled to taper in 2013. I know that was then, but this is now.
But what’s the rush to buy Dollars? The Fed has just joined a club whose esteemed membership already includes the Banks of Canada and England, along with the Reserve Bank of NZ. There will be more members joining in the future. Other countries economies will soon be returning to pre-pandemic levels of activity. Australia could be next, following the drop in Ozzie unemployment.
Of more immediate concern for your average Gold day trader is what to do next. We are already at one-month lows here, just above 1800.
I am looking for a correction to the 1842/1844 area before more attempts to the downside.
Although I can see some resistance at 1830/1832. I don’t think it will stop the correction for long. There is support now at 1810/1812 then 1806 and 1798.
I expect Federal Reserves officials now armed with a new narrative to press the talking about tapering story. I also expect they will mention the dot plot hikes by 2023. I also am sure there will be some admissions of underestimating inflation a little.
If there is one thing certain in life, other than taxes and death. It’s the Federal Reserve Presidents sticking to the script.
Effectively this is going to limit the upside potential of Gold for a few weeks at least.
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