He kept his options open after the Federal Reserve raised interest rates another 25 basis points. After that, the gold price continues its solid gains on Wednesday.
Fed increased 25 bps, gold price started to rise!
cryptocoin.com As you can follow, the Fed increased the interest rate to the range of 5.00-5.25% in line with the expectations. However, it gave little forward direction in its monetary policy statement. The central bank has raised interest rates for the tenth time in this tightening cycle. Accordingly, the Fed made the following statement:
The Board will closely monitor the incoming information and evaluate its impact on monetary policy. In addition, the Committee will consider cumulative tightening of monetary policy, delays in influencing economic activity and inflation, and economic and financial developments, while determining the extent to which additional policy tightening may be appropriate to return inflation to 2% over time.
Fed paints a mixed picture of the economy
Gold price rose to session highs as an initial reaction to the Fed’s monetary policy decision. The Fed paints a mixed picture of the economy as it continues to monitor inflation. The committee also downplayed the ongoing banking crisis. The Central Bank underlined the following points in its monetary policy statement:
Economic activity expanded at a modest pace in the first quarter. Employment growth has been strong in recent months. In addition, the unemployment rate remained low. Inflation continued to be high. The US banking system is robust and resilient. Tighter credit conditions for households and businesses are likely to put pressure on economic activity, hiring and inflation. The extent of these effects remains unclear. The Committee continues to be extremely attentive to inflation risks.
Did the Fed take the middle path?
There was little forward direction in the last monetary policy statement. Despite this, some analysts note a dovish trend due to the exclusions. The Committee no longer “anticipates that additional policy tightening may be appropriate.” Adam Button, chief currency strategist at Forexlive.com, comments:
So there is still an upward trend here. However, there is no longer a clear nod to future increments. Initial reaction is dovish with the dollar falling and stocks slightly better. This is no big surprise. But it’s as clear a pause signal as anyone could hope for.
Ole Hansen, head of commodity strategy at Saxo Bank, described the monetary policy statement as “middle ground”.
The #FOMC opts for the middle ground in removing pre-commitment to hike but leaves room to do so based on incoming data. The short-term interest rate market nevertheless likes the tone and adds a few more basis points to future rate cuts. Presser up next https://t.co/vF5h8qTcyf pic.twitter.com/W6LBaiogD6
— Ole S Hansen (@Ole_S_Hansen) May 3, 2023
Andrew Hunter, deputy chief US economist at Capital Economics, says the central bank gives the clearest clue that the tightening cycle is coming to an end. He adds that the next move will be a cut before the end of the year. In this context, Hunter says, “We expect economic weakness and a sharper-than-expected drop in core inflation to convince authorities to cut rates again this year.”
The positioning pattern is currently in favor of the gold price!
Could a new bull market below start at $2,000? TD Securities strategists discuss the appearance of the yellow metal. According to strategists, market participants are aware that the Fed is reaching ‘almost terminal’ levels in interest rates. This sets a high bar for a hawkish market reaction to the meeting. From this point of view, strategists make the following comment:
Surprisingly resilient data remains out of sync with the Fed’s inflation target. Stress in the banking industry raises concerns about the path of future data. As a result, the internal characteristics of the commodity market began to deteriorate rapidly. It also points to declining demand, consistent with an impending recession, particularly as China’s economic engine begins to stall. The risk of a deeper consolidation was significantly reduced. Also, the positioning pattern currently supports gold prices to continue to strengthen.
Key levels for gold price
Technical analyst Anil Panchal evaluates the technical outlook for gold on Technical Confluence Detector. Gold price is hovering well above the $2,025 resistance-support level, which includes the R2 one-week Pivot Point and the one-month Fibonacci 23.6%. The same joins the softer US Dollar to keep the gold bulls hopeful.
Even if gold price breaks the $2,025 support, the $2,011 confluence level could act as the last defense for gold buyers. The level in question covers the one-month Fibonacci 38.2% level. Following that, it’s possible that the $2,000 could act as an additional check for gold sellers before handing over control to them. On the other hand, the convergence of the R1 one-month and R3 one-week Pivot Points highlights $2,043 as a key short-term upside hurdle.
Should the gold price exceed $2,043, the previous month’s high and Bollinger’s upper band in the four-hour game could challenge gold buyers. It is worth noting that gold’s move beyond $2,043 could stall at $2,063, including the Pivot Point one-day R2 and Bollinger’s upper band in hourly play, a breakout of which could challenge the all-time high surrounding $2,080.
