Gold Prices Plunge as Fed Embarks on QT- Support Targets in View

New York (Sept 23)  Gold prices fell for the second consecutive week with the precious metal down more than 2.1% to trade at 1295 ahead of the New York close on Friday. The losses come on the back of FOMC interest rate decision where Chair Yellen & Co reaffirmed expectations for another rate hike in 2017 and announced the commencement of the balance sheet offload (quantitative tightening) starting next month. While the prospects for higher rates are likely to weigh on bullion prices, rising geopolitical tensions may limit the magnitude of the decline.

The Federal Reserve released its 4th quarter projections this week and although the committee did upwardly revised their year-end GDP forecast to 2.4%, they lowered inflation expectations with Core PCE (Personal Consumption Expenditure) revised lower to just 1.5% from 1.7%. This was the second consecutive reduction we’ve seen in the Fed’s inflation forecast and continues to suggest the central bank remains uneasy with the continued softness in price growth. 

It’s also worth noting that the interest rate dot-plot suggests the Fed remains committed to one more hike this year, expectations for the terminal or longer-run rate were lowered with the median forecast now calling for a nominal rate of 2.75%. The point is that although markets did need to reprice the December, the end rate suggests the glide path will likely be even slower than expected. That said, look for USD gains to be limited. From a technical standpoint, the prices do remain at risk near-term with the decline likely to offer favorable points of entry for the bulls.

DailyFX