Talking Points- Gold prices jumped on cautious FOMC statement, rising further on subpar economic data
- U.S. Durable Goods Orders & New Homes Sales missed the mark while annual inflation fell flat
- Gold breaks from is descending trendline
Gold prices ascend for a 6th consecutive day as the prospect of a U.S. rate increase becomes less imminent and the pace of hikes less urgent. Ignited by a cautious FOMC statement last Wednesday, the rise has since been supported by diverging economic data in the U.S. and subsequently a weaker U.S. dollar.
The initial dollar index drop resulted from a change in the Federal Reserve’s forward guidance. Despite removing the term “patience”, the overall tone of the statement aired on the side of caution. With a slowdown in the housing sector and weakened export growth the committee explicitly stated that raising the rate will be an unlikely scenario at the April meeting. They further expanded stating that even after employment and inflation are near mandate levels, economic conditions may warrant keeping the federal funds rate below normal levels for some time.
The ensuing index tumbles have resulted from this week’s off-the-mark economic indicators. U.S. Durable Goods Orders fell short in February, declining from 2.0 to 1.4%—well below the expected value of 0.2%. Existing home sales also faltered coming in at 1.2 vs. the expected 2.0 percent. As a final influence, the annual inflation rate fell flat in February at 0.0%—a considerable distance from the targeted 2.0%.
Consequently, over the same time span in which gold prices rose, the U.S. dollar Index fell just over 2.0 percent. The drop has left price approaching the former resistance turned support level—near 11,870. Given that gold is priced in U.S. dollars, this change in the U.S. dollar index has made the precious metal a more attractive investment. In breaking above resistance, gold has traded as high as $1,199.
Chart Created by Walker England Using MarketScope2.0