Gold prices moved higher on Wednesday with the closing of the FED meeting and boosted further the attractiveness of the yellow metal as of a safe haven investment.
Gold prices picked up significant heat during the event and gave the impression that it would keep the momentum for the days to come.
A detailed investigation must be made on the FOMC press conference as it could shed valuable information on what is to follow, which indirectly affects Gold prices.
Gold market mixed with FED and FOMC meetings
The central bank statement included a line in particular that in our opinion is very important and could be the difference compared to December’s statement.
In a single line the statement noted
“the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes”.
In a more direct way, the FED changed further gradual rate hikes to stating that they will wait and see how things will be and then act if necessary.
This scenario was somewhat expected by the market, as in the previous days various analysts had made reference to some US lukewarm financial data released in January.
Also implying this, were reports which gave the sentiment that the US economy had reached a peak in previous months and is now proceeding on a slower pace.
Even though in the FED’s accompanying statement it was mentioned that progress is still being displayed, the committee maintained a rather cautious tone.
The relation to Gold in this situation is that it surged on the news as the FED’s message was comprehended as dovish by the market.
A dovish comment in the meeting weakened the USD which eventually sent Gold prices higher, as the inverse relationship of the greenback and Bullion came into play.
Even though the statement was very clear, and the FED named in detail its concerns and opinions, uncertainty could prevail due to the fact that the rate hike path has been basically scraped for the time being.
Interest rate hikes have the tendency to decrease Gold prices as the precious metal is considered a non-yielding instrument and traders prefer other assets that appreciate in this situation.
Central Banks increased Gold Purchases
On other news, an interesting report from Reuters, stated that central banks increased their Gold purchases to the highest level since 1967.
It was said that Bullion demand increased by 4 percent last year, according to the World Gold Council.
More precisely, numbers indicate 4,345.1 tonnes were purchased in 2018, compared to 4,159.9 tonnes in 2017.
It is said that the surge in Gold was due to central banks of various countries, which bought a total of 651 tones more Gold than the previous year.
The report named countries like China, Poland, Russia, and Turkey with their central banks increasing Gold reserves.
As the global economy is forecasted to grow on a slower pace in 2019, central banks may want to keep up physical Gold purchases to hedge for any potential risks.
Focuses on China’s economy for Gold
A significant update that has the potential of affecting Bullion prices is the economic slowdown which is creeping up in China.
According to data related to January, China’s manufacturing sector dropped more than expected.
The IMF’s recent forecast that the Mainland could be looking ahead to some economic turbulence could be in display.
In particular the Caixin Mfg PMI final which represents China’s manufacturing sector, a key source of growth and jobs, was down more than expected.
The indicator landed to 48.3, reduced from the prior 49.7 but much lower than its forecast of 49.5, which confirms the industry contracted more than initially anticipated in January 2019.
We are not supporting the case of an economic crisis in China, we are confirming none other than what the financial releases are saying, which is China’s manufacturing industry is under pressure for the time being.
Does the pre mentioned news spark further interest for the shiny metal? Can this be a reason for further physical gold demand and purchase by the Peoples bank of China?
Technical Outlook on XAUUSD (Gold)
Please note Gold’s upward movement has broken all our previous levels since the precious metal has gained approximately 20 USD from Monday to Friday, 28th of January to 1st of February.
If the bull-run is to continue the precious metal could move above the 1320.41 (R1) resistance level with the 1326.22 (R2) and the 1332.95 (R3) levels being next.
In a bearish scenario, Gold could move towards the 1317.23 (S1) support level and even breach it aiming for the 1310.17 (S2) support level.
Gold could also move in a sideways movement between the 1320.41 (R1) resistance level and the 1317.23 (S1) support level.