Gold peaks at $1,128/oz on FOMC decision.

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Gold Traders Take Notice as The Fed Sits Up Lazily And Speaks
Wednesday January 27, 2016 18:07

One would think that for equities a temporary hold on Federal Reserve rate hikes would have produced at least a neutral if not positive resonance. 

 

Rather, equities markets chose to interpret the FOMC’s maintaining of the status quo as a statement that sketches the world economy as weakening, if not sliding toward recession. On that note, it is China that is generating those fears. 

 

Notably, the Fed said it is "closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the [Fed’s] outlook." 

 

"People are nervous so they probably fasten on the fact that the Fed needs to keep an eye on market and international developments," said Lisa Kopp, head of “traditional investments” at U.S. Bank Wealth Management. "People are just jittery and it will take time for things to settle out... I think the market being down is just indicating it's a tough market right now.”

 

Gold experienced a nice pop on the Fed tango, helped by a modestly weaker dollar but sailing ahead on its own with following winds. Traders and investors seem to have rediscovered the yellow precious metal’s magic – err, safe–haven properties. 

 

Silver was held down by profit taking. Palladium and platinum also rose smartly. 

Crude oil has rebounded over 20% from its most recent lows. That seems to have had little effect on equities, which were damaged by oil’s fall. The Federal Reserve made a renchant observation in today’s meeting statement: 

 

“Inflation is expected to remain low in the near term, in part because of the further declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.” 

 

Curiously, U.S. bond yields held steady on the day. That gives support to something we sensed yesterday. The rise in gold prices is only tangentially connected with safe-haven interest. Longer-term investment in gold may well be at hand.