The recent FOMC meeting by the Federal Reserve in the United States once again "gifted" gold prices! As expected, the interest rates were kept unchanged, but the implied signal reignited hope for gold. Nearly three-quarters of the policymakers indicated that by the end of 2024, US interest rates might be lower than the current levels, with a target rate range potentially lowered by up to 75 basis points. Even more excitingly, Powell explicitly stated that the tightening has come to an end. He pointed out that inflation is now under control, indicating that the current level of interest rates is sufficiently high. The market generally believes that the focus for the future will be on the timing of interest rate cuts.

Following the announcement, the market reacted positively. According to CME tools, the probability of a rate cut in March surged by over 20 percentage points to 72%, and the probability for a rate cut in May approached 94%. Therefore, the market unanimously believes that the Federal Reserve has clearly turned dovish, providing strong impetus for gold prices. In addition to the potential shift in interest rate policies, the ongoing tensions between Russia and Ukraine and conflicts in the Middle East will also maintain the attractiveness of gold as a safe-haven investment. Some officials have also stated that in an uncertain economic and geopolitically turbulent world, any major sell-off in the gold market would be relatively quickly bought up.

From a technical perspective, the daily gold chart has returned to an upward trend after finding strong support. Although there was a retracement after hitting a new high earlier, it has now retraced to around USD1,980 and stabilized, with the potential to return to the recent high of USD2,140. The current key support level for a favorable retracement is around USD2,000, and investors who are bullish may consider buying at this level. In addition, the surge in trading volume supports a bullish view. In recent rallies, the trading volume has been much higher than during the decline phase, further confirming the market's bullish sentiment.

With the imminent decline in US interest rates, the cost of holding metals will significantly decrease. If the Bank of England and the European Central Bank also exhibit similar dovish views in the future, the potential for gold price increases will be further unleashed. At that time, with major central banks around the world leaning toward dovishness, it is expected that gold prices will enter a new upward phase. In summary, the Federal Reserve's "dovish rhetoric" this time has created a healthy environment for the gold market, favoring the continuation of historical highs in the new year.

Hugo Leong

Gold Analyst of Hantec Group