Gold might pop Monday, but beware holding through Wednesday
Coronavirus is accelerating this weekend, with the number of cases having nearly doubled since Friday. The fear is likely to give gold a boost, so I'm expecting a Monday spike.
However, there's some risk going into the Fed meeting Wednesday. The Fed's last statement indicated that they didn't anticipate changing rates this year. However, stocks and economic data have been strong, so futures traders have put about 13% odds on the Fed raising rates on Wednesday.
I highly doubt we get a rate hike this time around, but the real question is what the Fed might signal about the future. If they reaffirm their intention to leave rates alone, then gold should post a small gain. However, if they signal that they might raise rates later this year, then gold could drop hard.
I'd put the odds about 50-50 either way (although coronavirus probably makes the odds of a rate hike signal a little less likely than it otherwise would have been, since the Fed may not want to inject further fear into the market right now). However, with gold trading at such a high price, the downside risk of a rate hike signal may be bigger than the potential upside gain from a signal that they will leave rates alone.
However, there's some risk going into the Fed meeting Wednesday. The Fed's last statement indicated that they didn't anticipate changing rates this year. However, stocks and economic data have been strong, so futures traders have put about 13% odds on the Fed raising rates on Wednesday.
I highly doubt we get a rate hike this time around, but the real question is what the Fed might signal about the future. If they reaffirm their intention to leave rates alone, then gold should post a small gain. However, if they signal that they might raise rates later this year, then gold could drop hard.
I'd put the odds about 50-50 either way (although coronavirus probably makes the odds of a rate hike signal a little less likely than it otherwise would have been, since the Fed may not want to inject further fear into the market right now). However, with gold trading at such a high price, the downside risk of a rate hike signal may be bigger than the potential upside gain from a signal that they will leave rates alone.
