Gold prices hit a new high of $2015 per ounce on Monday, marking a return to a rally that had paused for two days. The last time gold futures traded above $2000 per ounce was in March 2022, when they reached a high of $2077. A subsequent multi-month correction was followed by a triple bottom, which ended the correction and sparked a multi-month rally that led to the recent price surge.
As of 6 PM EST, gold futures for the most active April contract opened up overseas in Australia, fixed at $1972.10, which was $22.50 higher than the New York closing price.
Overseas traders were following the lead of US market participants who were digesting news from the Federal Reserve’s FOMC meeting. As expected, the Fed raised its fed funds rate by ¼%, but it also announced a pivot: a pause in rate hikes with the possibility of one more rate hike of ¼% in May. The Fed confirmed that it would keep the terminal rate elevated throughout 2023.
Although some investors had hoped for news of a rate cut, the Federal Reserve made it clear that this was not currently on the table, and interest rates are expected to remain elevated for the remainder of the year. However, the pivot signaled that the Fed would not continue with aggressive rate hikes.
This announcement caused gold prices to rise and the dollar to fall, with the dollar index fixed at 102.195, a 0.66% drop. The FOMC meeting had a different tone than expected, with the announcement of a pause for the first time since the beginning of the aggressive period of rate hikes in March 2022, taking the Fed funds rate from near its current rate to 4 ¾% to 5.00%.
According to the CME’s FedWatch tool, there is a 38.8% probability that the Fed will pause rate hikes in May and a 61.2% probability that they will enact their last rate hike in this cycle of ¼%, which would take their terminal rate to 5.00% to 5.1/4%.
Chairman Powell’s announcement that a pause in rate hikes is imminent is good news for precious metals investors, as gold is often seen as a hedge against inflation. Higher interest rates make other investments more attractive, but with rates expected to remain elevated, gold may continue to see strong demand.
The Federal Reserve’s announcement has implications for a wide range of industries, particularly those with high levels of debt. Higher interest rates make borrowing more expensive, which can have a significant impact on businesses. The pause in rate hikes may provide some relief for those struggling to manage their debt burdens, particularly in the face of rising inflation.
Investors have responded to the Federal Reserve’s announcement with mixed reactions, with some viewing it as a positive development for precious metals and others concerned about the impact on businesses and the economy. As always, investors will closely monitor market trends and news developments to make informed decisions about their investments.