The Fed’s surprise move on Sunday Makes Wednesday’s rate decision a non-event

By Admiral Markets

Source: Economic Events March 18, 2020 – Admiral Markets’ Forex Calendar

The state of Gold, given the recent developments around the Coronavirus, collapse in oil prices, and the massive monetary stimulus from the Fed last Sunday, is clearly bullish in the mid- to long-term. A run above 2,000 USD seems only a question of time, so the short-term picture stays way more complex.

On Sunday evening, the US central bank, the Fed, took a massive step: it cut rates to 0.0%-0.25%, launched a massive QE program of USD 700 billion, announced swap lines with global central banks to make sure that enough USD are available, and cut reserve ratios for banks to 0 in anticipation of today’s Fed rate decision. This potentially makes the event a ‘non-event’.

However, these extreme measures failed to lift the market. Equities and Gold dropped. Gold, usually a safe-haven by typically profiting from a dovish Fed and any US yield collapses, failed to gain momentum.

While we could certainly argue that this is a result out of the sharper bounce in US yields after its short-term drop below 0.3% over the last week, this seems only half the truth.

In fact, recent data from the Commitment of Traders Report underlines the point that the drop in Equities resulted in margin calls, which led larger market participants to reduce their Gold Long exposure to meet these.

In addition to this, traders should also recall the drop in Gold during the 2008 financial crisis, where a deflationary shock resulted out of the credit crunch which had a negative impact on the yellow metal with dropping and taking on momentum from 2010 onwards.

This time could be similar, meaning that despite elevated volatility and dropping US yields driven by risk-off tendencies, Gold may fail to profit and see a drop, going hand in hand with a dropping USD and dropping Equity prices.

While the mid- to long-term mode in Gold stays bullish, short-term a drop below 1,440/450 USD would technically darken the picture, activating 1,250/260 USD as a first target:

Source: Admiral Markets MT5 with MT5SE Add-on Gold Daily chart (between December 14, 2018, to March 17, 2020). Accessed: March 17, 2020, at 10:00 PM GMT – Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015, the value of Gold fell by 10.4%, in 2016, it increased by 8.1%, in 2017, it increased by 13.1%, in 2018, it fell by 1.6%, in 2019, it increased by 18.9%, meaning that after five years, it was up by 28%.

Discover the world’s #1 multi-asset platform

Admiral Markets offers professional traders the ability to trade with a custom, upgraded version of MetaTrader 5, allowing you to experience trading at a significantly higher, more rewarding level. Experience benefits such as the addition of the Market Heat Map, so you can compare various currency pairs to see which ones might be lucrative investments, access real-time trading data, and so much more. Click the banner below to start your FREE download of MT5 Supreme Edition!

Disclaimer: The given data provides additional information regarding all analysis, estimates, prognosis, forecasts or other similar assessments or information (hereinafter “Analysis”) published on the website of Admiral Markets. Before making any investment decisions please pay close attention to the following:

1. This is a marketing communication. The analysis is published for informative purposes only and are in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
2. Any investment decision is made by each client alone whereas Admiral Markets shall not be responsible for any loss or damage arising from any such decision, whether or not based on the Analysis.
3. Each of the Analysis is prepared by an independent analyst (Jens Klatt, Professional Trader and Analyst, hereinafter “Author”) based on the Author’s personal estimations.
4. To ensure that the interests of the clients would be protected and objectivity of the Analysis would not be damaged Admiral Markets has established relevant internal procedures for prevention and management of conflicts of interest.
5. Whilst every reasonable effort is taken to ensure that all sources of the Analysis are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admiral Markets does not guarantee the accuracy or completeness of any information contained within the Analysis. The presented figures refer that refer to any past performance is not a reliable indicator of future results.
6. The contents of the Analysis should not be construed as an express or implied promise, guarantee or implication by Admiral Markets that the client shall profit from the strategies therein or that losses in connection therewith may or shall be limited.
7. Any kind of previous or modeled performance of financial instruments indicated within the Publication should not be construed as an express or implied promise, guarantee or implication by Admiral Markets for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.
8. The projections included in the Analysis may be subject to additional fees, taxes or other charges, depending on the subject of the Publication. The price list applicable to the services provided by Admiral Markets is publicly available from the website of Admiral Markets.
9. Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, you should make sure that you understand all the risks.

By Admiral Markets