Gold sets record high, only few steps away from $1300, after FED meeting
The Federal Reserve released its rate decision yesterday, pledging to preserve rates to “extended period,” the Fed will continue to monitor the outlook of the US economy, while adding that “additional accommodation will be provided if needed to support recovery.”
Gold surged as the dollar slumped. Investors dumped the dollar as future liquidity provision from the Fed should weaken the currency.
Gold's strength despite global inflationary outlook remains subdued as the market viewed it as an alternative to hold currencies. Moreover, the low interest rate environment reduces the opportunity cost of gold investment which provides no yields.
Crude oil was initially buoyed by Fed's statement. However, gains were erased amid concerns over inventory and demand outlooks.
The metals started on a negative note yesterday, they got some lifted on the back of better US housing data, but then drifted again into the close and ahead of the FOMC statement. Overall the base metals have done well in recent weeks, but do seem to have run into resistance, that said they have not yet thrown the towel in by any means.
However, if the developed economies turn down again, then there is likely to be another bout of destocking and that might shake the investments longs out too. Back in 2005-07 there was a lot of talk about the bullish super-cycle and that investors were in for the long run, but that didn't stop base metal prices falling extensively in 2008.
We are not saying things are outright bearish, but we do find it difficult to see why the metals are as bullish as they are as we think there will be more economic hardship between now and an eventual sustainable recovery.
