Analyzing the Fed's Decision. Gold Market in Turmoil!

In the wake of the recent Federal Reserve (Fed) decision and its implications for the financial markets, we reached out to experts, analysts, and economists from HF markets to gain their insights on the current situation. Our focus revolves around two key areas: the Fed's decision and its impact on the gold market. With these topics in mind, we explore the potential outlook for gold prices in the coming weeks and discuss the market's response to the FOMC (Federal Open Market Committee) decision.

 

Gold Market Analysis

When considering the trajectory of gold prices in the near future, experts express skepticism regarding the likelihood of reaching a new all-time high for XAU. While certain central banks, including Turkey, China, and India (which added 2 tonnes to its reserves in May), have increased their gold purchases to diversify their reserves away from the US dollar, investors, speculators, and hedge funds focus on other factors. Notably, gold is currently trading at a premium compared to its valuation against the US 10-year real interest rate. Recent price movements indicate a potential further decline, with a possible target range of $1860 or even lower to $1785.

FXMAG.COM: Could you give as your point of view about how the gold prices would behave in next weeks? Is there a chance that there will be new ATH?

Marco Turatti – HFM Market Analyst:

It seems unlikely that we will see a new all-time high for XAU soon. Its price has so far been supported by increased purchases by certain central banks, such as Turkey, China and others (India added 2 tonnes to its reserves in May). The aim is to differentiate its reserves from the USD. 

But investors, speculators and hedge funds look at other fundamentals and gold is very expensive compared to where it should trade against, for example, the US 10-year real interest rate. Just today it broke $1940, and could continue to the $1860 zone, if not lower to $1785. 

 

Fed's Decision and Market Reaction

Regarding the FOMC decision, experts highlight the surprise factor. Many anticipated that the Fed would approach the peak and initiate rate cuts in the coming months. However, the Fed's stance indicates that the official rate could reach 5.75% in 2023, with Chairman Jerome Powell stating that no cuts are expected for approximately two years. This stands in contrast to the Dot Plot projections. The Fed also expressed optimism regarding the new growth and job outlook.

 

 

FXMAG.COM: Could you please comment on the FOMC decision?

Marco Turatti – HFM Market Analyst:

The Fed really surprised: a lot of people thought we were close to the peak and ready to cut rates this year, but this is not the case. The official rate will probably reach 5.75% in 2023 and Jerome Powell says there will be no cuts for about 2 years (which is different from what the Dot Plot says). 

They were also quite optimistic about the new growth/jobs outlook.

The market didn't really go anywhere: yes, there was a lot of up and down movement in both indices and the USD, but at the end the day it ended with the US500 flat and the USDIndex having recovered 103. 

Now there will be time in the coming hours to better process the central bank's message. Today (15/06) we are seeing declines in the stock market futures and this makes sense for equities (also given the emphasis on labour market monitoring, the Fed wants it weaker). 

One direct and clear reaction we are noticing, however, has obviously been the rise in rates along the whole curve, which is weighing on gold.