GOLD PRICE OUTLOOK: BEARISH
- Gold prices[1] may suffer if FOMC[2] minutes spark risk aversion, concerns about liquidity
- XAU/USD[3] could face additional selling pressure if employment data sours sentiment
- Ballooning credit risks from distressed corporate debt markets may cap gold’s gains
Gold Prices May Fall on FOMC Minutes
Gold prices could suffer after the minutes from the Federal Reserve’s emergency meeting on March 15 are released. That day, Chairman Jerome Powell announced that the central bank cut itstarget range for its benchmark Fed Funds interest rate to 0.00-0.25 percent. He also announced a $700 billion quantitative easing program (QE) with $200 billion dedicated to mortgage-backed securities and $500 allocated to Treasuries.
Gold Prices – Weekly Chart
XAU/USD chart created using TradingView
While the Fed’s intention was to help bolster confidence and provide liquidity, their actions were met in turn with risk aversion. This may be because the Fed’s policies were read by investors as an acknowledgement of how dire the circumstances were that it would require credit-easing policies of that magnitude. Following the announcement, gold prices fell as demand for liquidity surged and pushed the haven-linked US Dollar[4] higher.
This is because gold’s appeal as an anti-fiat hedge was undermined after the Fed cut interest rates to zero and led investors to question the utility of holding a comparatively illiquid asset. Gold prices may therefore suffer after the FOMC meeting minutes are released if the underlying text sends a chilling effect across markets and recreates a similar market dynamic investors saw on March 15.
XAU/USD May Retreat if Credit Risks Amplify Liquidity Concerns
The yellow metal may face additional selling pressure if signs of an ever-increasing distressed corporate debt market spark fears of a credit crunch.
