Gold futures are trading higher on Thursday, but the inside move suggests buyers are being a little more cautious as the market hovers near an eight month high. Although prices rose sharply on Wednesday after the Fed announcement, the sell-off from the top suggests that the central bank’s decisions were already priced into the market. Furthermore, gold prices could suffer if demand for risky assets continues to soar.
At 08:43 GMT, April Comex gold is trading $1325.50, up $9.90 or +0.75%.
Fed’s Moves Spike Gold to Multi-Month High
U.S. Treasury yields dropped on Wednesday setting off a wave of activity in the commodity and financial markets after the Federal Reserve signaled to some investors that it may slow the pace of interest rate increases in 2019. Fed policymakers left the benchmark overnight lending rate unchanged between a range of 2.25 percent and 2.50 percent at their January meeting.
Yields were pressured after Fed policymakers said the central bank would be patient when making decisions about future monetary policy. The Fed also removed references to “further gradual increases” to the federal funds rate in its monetary policy.
The drop in U.S. Treasury yields helped make the U.S. Dollar a less-attractive investment sending gold prices sharply higher.
Gold Buyers Torn Between Slowing Global Economy and Higher Demand for Risky Assets
Gold has been supported for months by signs of a slowing global economy and excessive stock market risk that led to the shedding of risking assets and increased buying of gold as a safe-haven asset.
Even though it may takes months for the global economy to recover, the news that the U.S. and China are close to making a deal or the announcement of a new deal will likely put pressure on gold prices. Additionally, this would also eliminate one of the concerns for the Fed.
This puts the trade talks at the forefront on Thursday. If the talks end and the tone is negative then gold is likely to continue to push higher. If the talks end on a positive note then start looking for profit-taking to drive prices lower. This news would likely send more capital into higher risk assets.
The U.S. and China have until March 1 to get the deal done or President Trump will likely impose increased tariffs. The time between when this round of talks end and the deadline for the deal could produce extremely volatile conditions in gold due to excessive speculation.