As we expected yesterday, the Federal Open Market Committee (FOMC) remained patient about future interest rate hikes. After the announcement, gold lost about $5, because investors considered the Fed’s stance more hawkish than expected. The main reason is that the Fed was slightly more bullish on the U.S. economy (which has been expanding at a ‘solid’ pace, according to the Committee, compared with the opinion about a ‘moderate’ pace expressed in December) and it removed any mention of holding rates lower for a “considerable time” in the statement. This may indicate the eagerness to hike interest rates this year.

On the other hand, the FOMC repeated from the previous statement that “the Committee judges that it can be patient in beginning to normalize the stance of monetary policy”, and acknowledged the international situation (“in determining how long to maintain this target range, the Committee will assess (…) international developments”).

In our opinion there are many potential risk factors, which may postpone the interest rate hike. Just to mention, problems in the oil industry, gloomy global economic growth, probable further outflows from the emerging markets, or possible distress in Australian and Canadian economies due to low commodity prices. Therefore, gold investors should not be worried about the FOMC statement. The market is often wrong on timing of interest rate hikes. Actually, it has been predicting rate hikes for the past five years.

Arkadiusz Sieron
Sunshine Profits‘ Market Overview Editor

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