According to analysts at TD Securities, gold complex received a big boost from a convincing drop in rates across the yield curve, after the US Fed dropped the median dot to levels which signaled to the market that the central bank will not hike rates further this year, while also moderating its balance sheet reduction.

Key Quotes

“Despite the fact that the dots are pointing to one more interest rate increase in 2020, many observers now believe that the next move on the US policy rate front will be a cut. The greenback, which is a key gold driver, initially dropped sharply on the news before recovering somewhat after disappointing PMI numbers from both Germany and France, which provided some renewed support for the dollar, as it looked the best among a weak bunch.”

“This likely was the key reason why gold did not meaningfully follow through higher. Given that the market is increasingly pricing in a US rate cut this year, the US dollar is on a weak footing and considering that equities are generally more worried about growth, gold could well move into a higher trading range sooner than expected. Indeed, we suspect that current prices will prompt aggressive CTA buying along with additional spec length.”

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