The gold prices surge to more than 5-year high amid the dovish Fed’s statement, which hints for further monetary policy easing. Gold built on the post-FOMC upsurge and rallied to near six-year tops during the Asian session on Thursday, albeit retreated a bit thereafter.
Spot gold was up by 1.7% at 1,382.70 USD per ounce as of 02:50 a.m. ET, after hitting its highest since March 17, 2014, at 1,386.38 USD. Meanwhile, the US gold futures jumped by 2.8% to 1,386.30 USD per ounce, after touching their highest since April 2018 at 1,397.70 USD per ounce.
The Fed on Wednesday said it was ready to battle growing global and domestic economic risks with interest rate cuts beginning as early as next month, as it took stock of rising trade tensions and growing concerns about weak inflation. Lower interest rates decrease the opportunity cost of holding non-yielding bullion and weigh on the dollar, making gold cheaper for investors holding other currencies. The question now is if there is going to be a 50 basis point cut in July, which could take gold into 1,400 USD, which becomes the target price for most investors.
On the longer term, however, it is going to be difficult to stay above 1,400 USD as with better conditions for riskier assets due to rate cuts, investors might move to equities.
Gold prices have gained more than 80 USD so far this month. The market is truly bullish, as the precious metal is gaining in almost every currency. Thus, the spot gold may gain more to 1,404 USD per ounce, as it has cleared a resistance at 1,371 USD.
Gold prices have also been supported by buying by global central banks. Since the beginning of 2019, the precious metal had a lackluster performance, but surprisingly in the last month, we have seen a good run up in gold prices. It seems that in the phase of consolidation some major buying has taken place and one of the purchasers have been central banks. The latest report by World Gold Council (WGC) showed that some central banks in Asia including China, India and Kazakhstan and from Europe such as Russia, Poland, and Hungary have begun accumulating gold, although in minimal quantity, and that is starting to reflect on prices.
Other precious metals also rose, with silver gaining 1.1% to 15.31 USD per ounce, its highest in nearly three months, while platinum climbed 0.6% to 815.84 USD per ounce. Meanwhile, palladium rose by 1.1% to 1,517.05 USD per ounce, its highest in 12 weeks.
Gold price analysis
The gold price has been in a strong uptrend. After a dovish FOMC statement, we might see a safe haven flight into Gold, so new highs are possible.
The Federal Reserve left its benchmark short-term interest rate unchanged, but FED Chairman Jerome Powell noted that the US economic outlook is increasingly uncertain, citing trade tensions and slowing global growth. Almost half of the members of the Fed’s rate-setting body see a possible rate cut this year, making the FOMC statement a bit dovish. The surge in gold prices was likely driven by the declines in yields of shorter-duration Treasurys ranging between three months and two years. The yield on the 3-month Treasury note trickled lower to 2.177%, as of 2:00 a.m. ET Thursday.
The resistance of the past five years on gold price between 1,348 and 1,375 USD, which has housed numerous key high failures, is being broken. The next resistance is at 1,391 USD from 2014.
Technically this is a hugely positive move, holding the run higher and accelerating. However, there is always a caveat with such a move, with the RSI into the 80s (very rare and not seen since February 2016). How the candlestick closes today could also be key.
Recent sessions (aside from last night) have tended to lose momentum unto the close. A solid bull candle would reflect a continuation. The breakouts at 1,375 USD (2016 high) and 1,366 USD (2018 high) are supportive. Above 1,391 USD opens levels not seen since 2013 (with a high of 1,433 USD).