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U.S. Federal Reserve’s Dovish Stance Sets Gold Ablaze On COMEX

  • March 21, 2019 07:00 PM AEDT
  • Team Kalkine
U.S. Federal Reserve’s Dovish Stance Sets Gold Ablaze On COMEX

Gold prices surged, with COMEX gold futures rising from the level of $1301.70 (closing on 20th March) to the current level of $1318. The gold prices soared after the U.S. federal reserve Chairman Jerome Powell made it clear on 20th March 2019 that the global economy is still weak and interest rate should be in check for now. The increased dovish stance of the FED chair concerned market participants over the slowdown in the global economy and in turn supported the prices of risky assets such as gold.

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After a two-day meeting on monetary policymaking, the members of the Federal Reserve unanimously said that the credit condition is still tight in the U.S. economy and any hike in interest rate should be on a hiatus. The FED Chair said that the financial conditions of the domestic economy are still tight as compared to 2018 and the FED is not content with the recent market rally in the U.S. market.

The dovish stance of the central bank and a potential signal of a rate cut rather than the two predicted rate hikes in December exerted pressure on dollar prices. Dollar Index (DXY) fell from the level of 96.57 (Day’s high on 20th March) to mark the low of 96.05. The fall in dollar prices along with the fall in U.S.-10-year yield-to-maturity supported the gold prices.

Another major event which added to the gold rush seen on 20th March was the potential delay in Brexit. After the rejection of the recent Brexit proposal of the U.K. President Theresa May in the parliament, the U.K. president pledged with the European Union to extend the 29th March deadline of Brexit. The seeking of a possible extension to the deadline concerned the market participants over the uncertainty into the matter and in turn supported the gold prices.

In the recent news of the U.S-China trade talks, the U.S. President Donald Trump said that the trade talks between both the major economies to solver the bilateral disagreement among them is proceeding well, which in turn further supported the prices across fixed income markets.

The Bond market is on a surge over the building optimism between the two countries and the surge in the bond prices and an increased return from the risky asset led the market to decrease the discount rate and shift towards the risky assets to increase the return.

The gold miners on Australian Stock Exchange reacted positively over the sudden spike in gold prices, with Evolution Mining Limited (ASX: EVN) surging up to mark a high of A$3.790 and closing at A$3.750 (as on 21st March), up by 1.90% as compared to its previous close.

Another gold miner, Regis Resources Limited (ASX:RRL ) soared on ASX, with the stock making a high of A$5.430 during the trading session. The stock closed at A$5.420, up by 1.50% as compared to its previous close.

The shares of Newcrest Mining Limited (ASX: NCM) also surged to mark a high of A$25.660, before settling for the day at A$25.590, up by 2.36% as compared to its previous close.


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