Gold Surges as Fed goes full dovish

June 20, 2019

London (June 20)  Yesterday FOMC was unspectacular, as interest’s rate was kept unchanged, the key takeaway was clear. By removing the “patient” from the official stated, the Federal Reserve has to shift into a dovish bias. Their economic assessment was upbeat but the changes in policy direction were justified by a weak inflation outlook. The market is now pricing in the likelihood of three rate cuts in 2019. The move is coming as the market is pricing in a probability of 100% cut in July (from 80% chance prior), and two additional cuts up to 70% form 45% before the meeting. Risk appetite responds as expected as U.S. stocks rose marginally (banks stocks surpassingly lagged) and USD fell against all G10 currencies. With expectations of the US central bank further debasing the USD, gold prices surged, climbing from $1357 to $1394 high in a single session. Golds inverse correlation to US real yields is strong. As the Fed pushes the front-end yields lower (US 2-yrs yields fell sharply from 1.87% to 1.73%), Gold shine should further improve. With President Trump tweeting for a weaker USD, and Powell seemly capitating Gold might be poised to regain its title as the anti-USD (momentarily stolen by upstart bitcoin). That said, the king of crypto is head back towards $9477 range high.


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