Dealing Desk: Gold Surges as the Fed Appears DovishMar 17, 2017·Rachel Stonier
Ordinarily, a rise in U.S. interest rates would see the U.S. dollar climb and gold fall....so what happened that saw gold surge and the dollar plummet on the back of Wednesday’s rate hike announcement?
Goldmoney Wealth clients have been net buying all precious metals this week, with silver being the most actively traded metal. Clients have preferred vaults in London, Zurich, Toronto and Hong Kong, and have shown less preference for the Singapore vault.
Ordinarily, a rise in U.S. interest rates would see the U.S. dollar climb and gold fall. As the expectation for a rate hike heightened over the last two weeks, we saw traders going short on gold and long on the U.S. dollar; so what happened that saw gold surge and the dollar plummet on the back of Wednesday’s rate hike announcement?
The Fed has pledged to stick to its gradual pace of tightening, with Chair Janet Yellen stating the central bank is willing to tolerate inflation temporarily overshooting its 2% target. The Fed continues to project two additional rate hikes this year and three more in 2018, which means real interest rates will deepen and go further into negative territory; this will weigh heavily on the U.S. dollar and, as such, may mean more of a shine for gold.
The Fed did not address the timing and impact of its massive balance sheet and its approach was interpreted as dovish by the market. Disappointing the more hawkish traders who expected an aggressive rate hike, the covering of short positions during Yellen’s speech caused gold to surge.
Gold spiked to $1,221 overnight on Wednesday, a move of more than $18 after the metal dipped below $1,200 earlier in the week following the release of strong U.S. employment data. Silver added $0.43 to $17.35, and platinum and palladium added $16 and $20, respectively.
All precious metals posted gains this week. Gold enjoyed the largest rise at 2.1%; platinum is up 1.8% and closely followed by palladium at 1.7%, while silver is up 1.2%.
16/03/17 16:00 – Gold: $1,228.88; Silver: $17.33; Platinum: $956.67; Palladium: $767.77. Gold/Silver Ratio: 70.91.
NOTES TO EDITOR
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