Gold likely to rally if Fed does not follow hawkish instincts - TDS

According to analysts from TDS, if Federal Reserve officials don’t adjust projections (the dot plots) higher, gold could move considerably higher later this week.

Key Quotes: 

“The yellow metal traded within a fairly tight range with prices oscillating between $1,302-1,340/oz since early March. Traders are conflicted: on the one hand, they are focusing on the pending rate hikes and the potential for a more hawkish tone coming from the Fed, while on the other, they are also responding to increased geopolitical uncertainty and the loss of risk appetite. FOMC rate hike jitters are being offset by geopolitical uncertainty in the form of the Russia, Middle East tensions and the continued US political uncertainty coming from the Trump White House.”

“A full blown Washington shift towards protectionism, which would no doubt be perceived to hurt global growth as the international flow of goods shrinks, could be very helpful to gold. Weaker-than-expected global growth would lower real interest rates and be a negative for equities, which should get the yellow metal to move above the current trading range to test recent highs of above $1,366/oz.”

“The probability of another rate hike is being priced at nearly 100%. The five rate hikes seen by the market in this cycle have produced a consistent behavior— gold selling off ahead of the move, only to rally strongly once the rate increase was announced. All of the recent hikes were characterized as of the "dovish" variety. The big risk for gold now is that the new Fed Chair, Jerome Powell, may strike a more hawkish tone. Given the current equity market weakness, recent lackluster economic data and trade war rhetoric getting louder, we judge that a hawkish tone is not do not warranted at this time. Given recent positioning, if Fed officials do not adjust the dot plots higher, the yellow metal could find a bid and move considerably higher later this week.”