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Gold is likely to continue its broad downtrend we saw in 2018 into the first quarter of 2019. At the end of the year, there were times in October and November when Gold rallied amid rapid selloffs in equities; however, these were only minor recoveries. Behind the selloff has largely been a hawkish Fed that raised rates four times, with the most recent 25-bps hike on December 19.

Rising Rates Pose Risk to Gold

At its final policy meeting of 2018, the Fed has also made it clear that it will continue with rate hikes unless major economic indicators signal a slowdown in growth or a notable decline in inflation. Fed Chair Jerome Powell wants to take advantage of the US’s economic momentum after a decade of anemic growth to raise interest rates back to the neutral level.

Accordingly, the US Dollar may gain in this environment with potential limited downside movement; a dovish Fed is already priced-in from this perspective. However, if the Fed follows through and raises rates, financial market participants will be taken by surprise and investors will possibly flock to the greenback. Rising rates, in turn, would be bad for Gold.

See the complete Q1'19 Gold forecast as well as forecasts for major currencies, equities, and Oil.

--- Written by Dimitri Zabelin, Junior Currency Analyst