Gold dumps over $12 on another hawkish rate cut from the Fed

• The Fed cuts rates by 25bp as expected and GBP/USD falls.
• Fed cuts interest rate on excess reserves to 1.55% from 1.80%.
• Gold drops over $12 of 0.85% on Fed hawkish cut. 

Gold has been volatile on the day, settling higher in the futures ahead of the Federal Reserve interest rate decision, and then falling post the rate cut. Spot Gold had been trading as high as $1495.69 before it dropped to a low of $1,483.16, in an extension during Powell's presser. December gold was higher by  $6, or 0.4%, at $1,496.70 on Comex, ahead of the Fed news.

US dollar index climbed

US dollar index climbed to a session high of 97.80, from 97.72 , immediately after the Fed cuts rates by 25 basis points which were a weight on the yellow metal. Investors and the consumer will cheer such a move, and with anticipation of further cuts down the line,  investment into US-denominated assets could be seen to be supporting the US Dollar in the near term and thus be a wight on the Gold price which had benefited from geopolitical and economic tensions this year. 

One of the major takeaways from initial releases of the decision and statement was the wording that had changed to The Federal Open Market Committee said it "would monitor the economic outlook as it "assesses the appropriate path of the target range for the federal funds rate." December gold was at $1,494.10 an ounce in electronic trading, shortly after the Fed policy statement. 

Key takeaways from the Fed

• Rates lowered to range of 1.50%-2.00%.
• Markets priced in a 97% chance of a cut before the decision.
• Prior range was 1.75%-2.00%.
• Uncertainties remain, will assess the appropriate rate path.
• George and Rosengren wanted no change.
• Change of wording in the statement says it will monitor incoming info "as it assesses the appropriate path" for the target range.
• Sets IOER at 1.55%, as expected.
• Economic activity has been rising at a moderate rate, the same as prior.
• Repeats that job gains have been solid, on average, in recent months, and the unemployment rate has remained low.
• Household spending has been rising at a strong pace vs 'appears to have picked up'.

Market takes this as a hawkish cut

"With rates potentially on hold for the remainder of the year, equities surging to all-time highs and a persistent sense of optimism on the trade front, the yellow metal could face significant headwinds in the near term," analysts at TD Securities explained. 

"Indeed, the stalling of the rally continues to see momentum signals fade, as the trigger for modest long liquidations has crept higher from $1,475/oz yesterday, to $1,482/oz today, which increases the risk of a swift gap to the downside should the market receive a "hawkish" cut."

 

From here, the rest of the week will be key, with plenty of scheduled data to digest which will surely rock the apple cart one way or the other should the data be out of line with expectations. For the price of Gold, the next key data will be Chinese Manufacturing, nonfarm Payrolls and US Manufacturing. 

Key manufacturing data ahead and trade wars:

• Trade war with China suffocating US manufacturers - GT

• Cancellation of the APEC summit in Chile is not a big obstacle for China and the US to sign a trade deal - GT

Gold levels