Gold Forecast: Dovish Fed and US-China Deal Needed for Topside Breakout

Gold Forecast: Dovish Fed and US-China Deal Needed for Topside Breakout

A day after President Donald Trump's latest attack on the United States central bank, Federal Reserve chief Jerome Powell hinted Wednesday the key lending rate would move higher but said there was no preset course.

The Nasdaq 100 rose 3.2 percent and the Dow added 2.5 percent.

"As always, our decisions on monetary policy will be created to keep the economy on track in light of the changing outlook for jobs and inflation", Powell said.

It is not clear whether the idea of perhaps nudging rates above neutral, as he had earlier suggested, is still on the table, or if it means he expects fewer rate hikes, or even a pause.

Chairman Powell may strike a similar tone before USA lawmakers as 'the economic effects of our gradual rate increases are uncertain, ' and another batch of less-hawkish remarks may sap the appeal of the US dollar as there appears to be limited views on implementing above-neutral interest rates. But the likely pace of rate increases next year remains a subject of speculation.

Among the conclusions, he said the central bank did not see "dangerous excesses" in stock markets, while the financial system was now "substantially more resilient" than it was before the 2008 financial crisis.

The dollar was down against its major peers as well as high-yielding and emerging market currencies, which have suffered a painful 2018.

Trump also used the opportunity to once again blast Fed Chairman Jerome, or Jay, Powell.

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Morgan Stanley expects USA economic growth to slow to 1.7 percent in 2019 from 3.1 percent this year. Those trends, he said, were coinciding with inflation remaining "right on target" at the Fed's goal of 2 percent annual price increases.

Mr Trump has criticised Mr Powell repeatedly this year, saying that the base rate is unnecessarily high and risks curtailing an economic boom in the US. Beyond the immediate focus of this weekend's Group of 20 summit - which may roil markets - there are other drivers that favour further gains in bullion including a steady build-up in exchange-traded fund holdings as well as votes of confidence from top banks.

While bullion was weighed down in the second and third quarters by a stronger dollar and rising borrowing costs, the dynamic may now be shifting as doubts build over the Fed's tightening path in 2019.

"They're making a mistake because I have a gut and my gut tells me more sometimes than anybody else's brain can ever tell me", Trump said in an interview with The Washington Post.

The central bank has already hiked rates three times this year and is largely expected to raise the rate again in December. Powell became Fed chair in February this year after being nominated by Trump and confirmed by the Senate.

Ian Shepherdson of Pantheon Macroeconomics said markets were reading too much into Powell's statement and with historically low unemployment, the Fed may have no choice but to keep raising.

Markets scaled back 2019 rate-hike expectations after Powell's comments.

"We also know that the economic effects of our gradual rate increases are uncertain, and may take a year or more to be fully realized", he said.

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