Apologies for the delay in our weekly report, but with so much riding on the Federal Reserve’s Federal Open Market Committee (FOMC) report released this morning, it’s more beneficial to analyse its impact.
Earlier this month a better than expected US jobs report fuelled speculation that the Fed would reveal a more hawkish stance in this morning’s announcement. In reality many were wrong footed by a subdued assessment of the US economy, leaving the market to rethink the timing of any increase in US interest rates. The FOMC noted that “economic growth has moderated somewhat” over the past month, which is a significant downgrade from the last statement wherein it said that activity rose “at a solid pace”. They also indicated that when interest rates do rise, they will likely rise at a slower rate than previously expected. Compared to expectations, this is a strongly dovish statement, resulting in a scrabble to cover and adjust positions.
The most significant impact from the report was the sudden correction to the USD. The USD index (a basket of currencies against the US dollar) plummeting 5%, before settling 2.2% lower. Precious metals and commodities all benefiting, with Gold climbing back above US$1150 support to close near US$1170 (+1.6%), while Silver gained 2% to settle just shy of US$16 per ounce.
Looking ahead, Gold still has plenty of headwinds, so I’m not getting overly excited unless we break and hold US$1180 resistance. As per last weeks suggestion, I do own Gold Call options, allowing me to benefit from any sustained Gold rally. With Platinum at US$1116, this is undervalued considering fundamentals, so I’m suggesting to hold and buy more with a view that we see a re-positioning in the market which will carry Platinum to 1175-1180 resistance levels. (more on this next week).
By Adam Van Sambeek