The dovish tone of the Fed statements provoked a sharp increase in gold prices, which by the end of the day strengthened by more than 1.2%.
The last FOMC meeting confirmed the worst concerns of investors, who expected a serious revision of the Fed policy for 2019-2020 and lower forecasts for the main economic indicators and interest rates increase. According to updated forecasts, the Fed no longer expects interest rate increases in 2019 and is considering the possibility of only one increase in 2020. The forecast for GDP growth in 2019 was reduced from 2.3% to 2.1%, in 2020 from 2.0% to 1.9%, in 2021 the forecast remained at 1.8%. Thus, the regulator signaled the completion of the interest rates increase cycle, which began more than three years ago.
As the main reasons for making this decision, Powell noted weak inflationary pressure, the situation in the stock markets, as well as a significant increase in external risks for the US economy.
For gold, the transition to a softer monetary policy on the part of the Fed is a strong long-term growth factor, as this decision will help weaken the dollar, in which the yellow metal is nominated, and reduce the yield of US government bonds, which are strong competitors for gold in terms of investment attractiveness.
The growth of quotations of gold was also supported by the comments of Trump on further trade relations between the United States and China. The American president said that the United States could keep the increased duty on Chinese goods for a sufficiently substantial period of time, even after the conclusion of a bilateral trade agreement. For the United States, this will be a kind of guarantee that the Chinese side will fulfill its obligations under the trade agreement, after which a phased abolition of duties may begin. Recall that yesterday, Bloomberg reported that there was no progress in trade negotiations, since the Chinese side wanted to get additional guarantees from the United States to cancel duties after an agreement was reached.
On the gold chart, the rising wave continues from the level of 1285.00, where the reversal formation appeared. Therefore, in the medium term, we expect further development of the bullish movement with the closest target 1340.00. At a longer distance, you can count on growth to the nearest local maximum at 1350.00.
Resistance Levels: 1320.00, 1330.00, 1340.00;
Support levels: 1311.00, 1300.00, 1295.00.
The main scenario - a correction to 1311.00 and the resumption of movement up to 1320.00.
An alternative scenario is the breakdown of support at 1311.00 and the return of the price to 1300.00.
Fundamental and technical analysis support the further development of the bullish movement, therefore, we still prefer longs from the level of 1311.00.
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