Can gold push higher as Fed fever fades?

Gold bounded higher in early trade on Thursday striking a 3-week high of $1320.05, as US treasury yields fell to a 14 month low following another dovish surprise from the Fed.

• Gold bounded higher in early trade on Thursday striking a 3-week high of $1320.05, as US treasury yields fell to a 14 month low following another dovish surprise from the Fed.

• The Fed kept rates unchanged on Wednesday but adopted a significantly more cautious outlook. With Fed policy makers now signaling 0 rate rises across 2019, downgrading growth forecasts and the markets pricing in an almost 40% probability of a rate cut by the end of the year, according to the CME Fed Fund Watch, the future for gold looks bright.

• Gold is highly sensitive to interest rates. Gold often rallies when the prospect of further interest rate hikes decreases or when the market expects a rate cut. This is because the opportunity costs of holding a non-yielding asset such as gold declines with lower rates. The prospect of a rate cut should support gold longer term.


• US treasury yields remain depressed at 2.52, however the dollar is clawing back losses from the previous session as Fed fever cools. 

• As a result, gold has eased back off its 3-week high and is testing resistance at $1310. Should gold manage to hold this level into the close, we could see the precious metal extend gains towards its 10-month highs at $1325. 


• Should Fed fever continue to cool and the dollar extend gains, gold could lose its shine for now and look to test $1300. A meaningful break through this level opening the doors to resistance at $1285.

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