Gold is on track today to rack up its second straight day of gains which ends a disastrous 2 weeks where the precious metal tumbled over $50.
The catalyst for the rise was yesterday’s Interest rate decision and monetary statement from the US Federal Reserve where as expected the Fed increased rates by 25 basis points. The rate hike was priced into the market well before yesterday’s decision but the following press conference caught investors by surprise.
Many had been predicting that the Fed would hike rates 4 more times next year but yesterday they hinted there would only be 3 more and some are starting to question this amount after 2 of the Federal board members voted against a rate hike on the back of persistently low inflation.
Gold is very sensitive to rate hikes and is seen as a strong hedge against low inflation.
“Gold moved up in its initial reaction because Fed is dovish in terms of a rate hike vision for 2018, and it sees only three rate hikes, not four,” said Naeem Aslam, chief market analyst at TF Global Markets in London.
Gold had been heavily subdued in the run up to this latest fed meeting and now that it’s over and unknowns such as how many rate hikes are out in the open we may see gold return to its recent rally.