XAUUSD

10:29, 21 December

Surges to Five Month High after Fed Raises Rates

In the last 24 hours gold has surged strongly higher to a five month high above $1265 after enjoying some solid support from the key $1240 level. For the last couple of weeks gold has consolidated a little resting on support at $1240 after making a strong rally back towards this level, which had become significant when it offered reasonable resistance halting its climb a couple of months ago. After struggling with the resistance level at the $1240 level for several weeks, it fell back to another key level of $1200 where it bounced off strongly. The $1240 level provided some support in July and more recently pushed gold lower in October, so it is significant that it has now broken higher. For the most part in the last couple of months gold has made a home in between two key levels of $1200 and $1240, and the markets were watching closely to see which way the next big move might be.

 

Gold has received both support and resistance from the $1200 level in the last few months and didn’t appear to be in any rush to move too far away. The $1240 level was significant several months ago when gold received some short-term support there and subsequent resistance, and yet again it has struggled with this. The $1240 level had also been a steady rock of support in the last 12 months for gold so it comes as no surprise that it is offering some reasonable resistance when it is approached.

Given the amount of time that gold consolidated around the $1200 level, it wouldn’t surprise anyone if it continued to do that now that gold has eased lower from its recent move higher. After falling for several years up until the end of 2015, which saw it fall from its all-time highs down to around $1050, gold has done well in the last few years to regain some of those losses, although it is really returning the gains in the last few months. It had climbed back above $1300 on several occasions since then and generally in the last 15 months it had been steadily climbing higher from around $1100.

As widely expected, the U.S. Federal Reserve raised its benchmark interest rate a quarter-point to 2.5% but lowered its projections for future rises. The latest rise was the fourth increase this year and the ninth since it began normalising rates in December 2015. It also came despite U.S. President Donald Trump's strong public comments against further rate increases at this time. Earlier in the week, he said "it is incredible" that "the Fed is even considering yet another interest rate hike." Fed officials now project two rate rises next year, which is a reduction but still ahead of current market pricing of no additional moves next year. Gold has enjoyed a solid boost by a falling U.S. dollar, falling equities and oil, as investors head for a safe haven. The U.S. dollar reached a one month low hit as a not-so-dovish rate rise indication by the Fed increased market conjecture that the country's economy may be running out of steam. The latest Fed move and subsequent comments fuelled further concerns about slowing global growth. The U.S. central bank signalled "some further gradual" hikes. It was unlikely that the Fed was ever going to completely remove reference to rises in 2019, however many expect that they will remain data dependent as we go into 2019. The Fed assured that it will "continue to monitor global economic and financial developments and assess their implications for the economic outlook."