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Gold Prices Rise Despite Fed’s Signals on Neutrality
Gold prices climbed on Wednesday morning in Asia, despite indications that the Federal Reserve might lower interest rates in the next two years.Gold futures for February delivery hiked 0.18% to $1,250.55 at 11:37 PM ET (03:37 GMT) on the Comex exchange, while the U.S.doller index, tracking the greenback against a basket of six currencies, weakened 0.01% to 97.38.Silver futures for March delivery also inched up 0.42% to $14.713.“We are in a situation where the U.S. Federal Reserve is starting to signal they may be very close to neutrality, which means just a few more interest rate hikes.“Over the last few weeks, several speakers from the Fed, including Chairman Jerome Powell has let the market know that they will be looking at the data when deciding the monetary policy going forward…
The market is interpreting this as lower interest rates in 2019 and 2020,” he said. (Source)The Fed’s Governor Lael Brainard said last Friday that risks are increasing overseas and in the corporate debt domestics markets. She said that the interest rate hike “has served us well by giving us time to assess the effects of policy as we have proceeded,” but “the policy path increasingly will depend on how the outlook evolves,” according to Reuters. (Source)Lowered expectations on rates hike usually shift demand for safe-haven assets like the precious yellow metal to the U.S. dollar or other stocks, but the bullish gold markets might be impacted by a gloomy outlook on a global market slowdown next year.
UBS and the Bank of America Merrill Lynch (NYSE:BAC) published forecast reports of the markets in 2019 last week, and both banks are predicting slower economic growth in 2019 at 3.6%.“Our outlook is that the U.S. growth will be constrained by ebbing fiscal stimulus and higher interest rates. In the Eurozone, solid domestic demand will not be sufficient to offset reduced export growth. China, meanwhile, faces the twin pressures of U.S. tariffs and economic rebalancing,” the UBS report said. (Source)The Bank of America Merrill Lynch forecasted that cash and commodities would be bullish next year.“Earnings growth is expected to decline sharply next year, from over 15% to less than 5% on a year-over-year basis. The team is bearish stocks, bonds, and the U.S. dollar; bullish cash and commodities; and long on volatility,” it said in a report.