Gold: What if the Fed doesn’t deliver? Gold: What if the Fed doesn’t deliver? Gold: What if the Fed doesn’t deliver?

Gold: What if the Fed doesn’t deliver?

Commodities 5 minutes to read
Ole Hansen

Head of Commodity Strategy

Summary:  Gold is trading back above $1,300/oz ahead of tomorrow’s FOMC meeting, while a weaker dollar and lower bond yields have offset the continued headwinds from rising stocks.


From a fundamental perspective we maintain a positive outlook for gold given expectations for a weaker dollar, stable to lower bond yields and concerns about global stocks’ ability to forge higher amid current growth concerns.

However, keep in mind that many investors buy gold in order to own an insurance policy against adverse movements across other investments such as stocks. And as long stocks continue to climb gold is likely to struggle finding the strong bid which drove it higher up until February 20 when it peaked just below $1,350/oz. 

The markets have now turned their attention to tomorrow’s Federal Open Markets Committee meeting. The expectations for what Powell and company decide to do have become an almost foregone conclusion -- a development which could leave the market exposed should they fail to deliver on the three points highlighted here:

Hold interest rates steady
Announce plans for the end of the asset roll-off from its balance sheet
Lower projections for the number of interest-rate hikes this year.

Anything but a lowering of the projections for the number of future rate hikes from the current two will be taken as negative. Not least considering the current market expectations – using Fed funds futures – which has seen the probability of a rate cut before year-end rise to 26%. However, the reduced stress across global financial markets following weeks of surging stocks have potentially reduced the FOMC’s willingness to play ball with market expectations. 
Source: CME FedWatch Tool
The short-term technical outlook for gold looks challenging with the emerging bear flag which, if broken to the downside, could signal a move lower to key support just below $1,280/oz and potentially as low as the 200-day moving average below $1,250/oz. 
Source: Saxo Bank
With tomorrow’s meeting being the main event risk on the short-term radar the use of soon-to-expire options can be useful for those holding long positions to mitigate the potential downside risk, or for those looking to get short should the abovementioned break occur.   

Options on the April futures contract on COMEX Gold expire in seven days on March 26. Below we have highlighted the put options with the 1,300 Put as an example being offered at $4.2/oz per lot (100 ounces), i.e. a cost per lot of $420.
Source: SaxoTraderGO

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research 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. To the extent that any content is construed as investment research, you must note and accept that the 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 under relevant laws.

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

Saxo
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992