Gold drops and pops following the Fed keeping rates unchanged (targets 1.5% to 1.75%)

• Gold is unsure on what direction to take following a rather benign outcome from the Fed.
• The dollar is lower, gold a little firmer following an initial drop and yields are steady. 
• Markets a little higher on the news that the Fed is on hold. 

Gold is trading at $1,570 at the time of writing following the Federal Reserve's interest rate announcement. Gold has travelled from a low of $1,563. to a high of $1,574.

The DXY has fallen to a low of 97.94 form a high of 98.19 and US 10-Year Treasuries are trading between 1.6050% and 1.6680% at 1.6170% at the time of writing. Also, US stocks climbed as the Federal Reserve signaled it will remain on hold and after a flurry of solid earnings from bellwethers. The S&P 500 Index held on to its gains as the central bank signalled policy is “appropriate” to support growth. Markets will now look to Governor Jerome Powell for clues as to how the Fed is placed with respect to inflation, employment, the Sino-American trade deal and the coronavirus risks.

Key notes from Fed statement

• Target rate remains at 1.5% to 1.75%
• Interest rate on excess reserves 1.6% versus 1.55%
• The decision is unanimous.
• Survey based inflation expectations a little changed.
• Current policy appropriate to sustain expansion.
• The Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation returning to the Committee's symmetric 2 percent objective.
• Labor market remains strong and that economic activity has been rising at a moderate rate. 
• On a 12‑month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. 
• Unemployment rate has remained low. 
• The labor market remains strong and that economic activity has been rising at a moderate rate. 
• The Committee decided to maintain the target range for the federal funds rate at 1‑1/2 to 1-3/4 percent.
• The Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation returning to the Committee's symmetric 2 percent objective.
• The Committee will continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path of the target range for the federal funds rate.
• Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. 
• In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective.

Gold depends on the virus, US dollar and global recovery

Meanwhile, we have seen gold struggle at the start of this year as US stocks seem relentless, and have even managed to stage a recovery (ahead of the Fed) in the sessions yesterday and today. The US dollar has also been picking up the flack in the FX space and gold on Tuesday lost 0.5%, continuing to pull back from a more-than-six-year high marked at the start of this year in the $1,611s.

However, the spread of coronavirus cases and its potential impact on the global economy should remain as a bullish factor for gold. The coronavirus has now infected at least 5,327 people in China, while the death toll in the country has risen to 132 and is spreading throughout the world – keeping risk-on psychology on edge while US yields remain at the lowest levels since October of last year. Can the US dollar hold up for much longer? That is probably where the upside is for gold in the near-term, and longer-term, depending on how the virus and the global recovery plays out.

Gold levels

As per the article yesterday, the price of gold has been found floundering between 1580 and the 1560s following a surge at the start of the year to the highest levels since March 2013 at $1,611.

However, the divergence on the weekly chart between momentum and price is alarmingly and a break in price to the downside could be the trigger for a top for the medium term with a downside target of 1530 ahead of 1440/50. On the other hand, bulls will be looking for a dicount here and preying price holds up and corrects higher again,

Gold Price Analysis: Bulls looking for a discount in $1560s