Thoughts on gold ahead of FOMC Thoughts on gold ahead of FOMC Thoughts on gold ahead of FOMC

Thoughts on gold ahead of FOMC

Ole Hansen

Head of Commodity Strategy

Summary:  Gold has so far managed to find support ahead of $1933, the 38.2% retracement of the recent run up in prices as it continues to consolidate after briefly trading above $2000 on Monday. Whether the improved risk tone can be maintained will to a large extent depend on further developments in the banking/liquidity crisis and not least on today's FOMC meeting, where the Powell Fed faces the unenviable task of weighing financial stability risks against ongoing inflation risks.


Today's Saxo Market Call podcast
Global Market Quick Take: Europe
Macro Digest: Why the Fed is more likely to pause today than hike


 

Gold continues to consolidate after briefly trading above $2000 on Monday. Driven lower by an improve risk-on tone in the markets and higher Treasury yields. Key focus on the uncertainty around the Fed's interest rate decision and guidance at today's FOMC meeting, where the Powell Fed faces the unenviable task of weighing financial stability risks against ongoing inflation risks, with the market leaning more strongly for a hike now but watching whether the Fed is willing to cave on its "higher for longer" forward guidance. And in the event the Fed does pause, will the market celebrate this or be spooked that the Fed sees things as worse than feared?

Gold has so far managed to find support ahead of $1933, the 38.2% retracement of the recent run up in prices, and a rejection at this level would signal a weak correction within a strong uptrend, while further weakness may add some selling pressure from recently established spec longs. In the week to March 14 when gold reached $1911 hedge funds bought 61k lots, a 254% increase on the previous week and the biggest one-week adding of length since June 2019. That buying from managed money accounts was carried out at an average price estimated to be around $1893. Buying probably continued up until Monday, raising the mentioned risk of long liquidation, should today's FOMC decision end up having a negative impact on gold.

Overall, however, gold remains in an uptrend, both short- and medium-term.

Source: Saxo

Our gold monitor below shows continued outperformance relative to the dollar and ten-year yields with the recent buying being driven by the reset of Fed rate hike expectations, down from four to the current one-and-done. This abrupt change, driven by the current banking crisis, has seen hedge funds as mentioned rush back into the futures market while ETF investors last week bought the biggest amount of gold in a year. 

The Saxo house view is that the FOMC will keep rates unchanged, and if that turns out to be correct gold may attract fresh demand, not least considering what it may do to medium- and long-term inflation expecations, as they could become unanchored from the current level below 2.5%. 

Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.