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Rallying After FOMC, Gold Now Tests Resistance Ahead of Pricing Change

Rallying After FOMC, Gold Now Tests Resistance Ahead of Pricing Change

Walker England, Kara Dailey,

Talking Points:

  • Gold rallied Wednesday following the FOMC announcement
  • LBMA Gold Price will replace the London Gold Fix on Friday
  • Gold bounces from support, testing trendline resistance

After opening near support, Gold rallied on Wednesday following the Federal Reserve’s FOMC statement. Cautious in nature, the announcement facilitated a rise in gold prices as the dollar index and bond yields fell. Unlikely to settle, the market looks to face another shift on Friday as the London Bullion Market Association is set to commence a new pricing system—the “LBMA Gold Price”.

The yellow metal climbed 2.6% on Wednesday in response to the Federal Reserve’s cautious outlook on the economy. Growth was classified as moderate rather than solid, with forecasts revised down from 2.6-3.0 percent to 2.3-2.7 percent. With a slowdown in the housing sector and weakened export growth the committee explicitly stated that raising the rate will be an unlikely scenario at the April meeting.

They further expanded stating that even after employment and inflation are near mandate levels, economic conditions may warrant keeping the federal funds rate below normal levels for some time. Thus despite removing the ‘patience’ term, the US dollar retreated 2.0%, making gold a more attractive investment.

However, the dynamic may change again tomorrow as a new pricing system will be launched by the LBMA and administrated by the ICE Benchmark Administration. In replacing the London Gold Fix, the LBMA Gold Price will be formatted in such a manner as to increase participation and transparency. Prices, as previously established, will continue to be quoted twice daily; however, bids and asks will be updated in real time via electronic auction platforms.

The new format will support additional participants beyond the present 5 full market makers: Barclays, Goldman Sachs, HSBC, JP Morgan and UBS AG. This will allow for additional institutions to offer 2-way price quotes on all or a combination of the three offerings—spot, forwards and options.

Gold Daily Chart

Rallying After FOMC, Gold Now Tests Resistance Ahead of Pricing Change

Chart Created by Walker England Using MarketScope2.0

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