The gold market rocketed higher on Wednesday, retaking the key $2,000 level as the Fed took a much more dovish tone following its latest meeting on monetary policy. The Fed not only signaled that it is done raising interest rates but also provided markets with strong clues it intends to start cutting rates in 2024. The Fed said it sees slightly lower economic growth next year. That slower growth, combined with easing inflation, may give the central bank the green light to begin easing and even ease aggressively as 2024 progresses.
The notion of a dovish central bank was welcomed by financial markets. The stock markets were up big on the announcement, with the Dow Jones, S&P 500, and the Nasdaq all up nearly 1.5% for the day at the close. Gold was just a hair under $50 per ounce higher on the day at the close of electronic trading and has now firmly retaken the $2,000 convincingly. The Federal Reserve and interest rates are likely to remain an area of focus in the months ahead as the new year gets started. Any major changes to the Fed’s outlook or dot-plot have the potential to move markets significantly in the months ahead. Rate projections for the intermediate term have now declined, while the long-term projection remains stable at 2.5%.
The Fed and inflation are not the only major factors for gold as the new year approaches. The wars in Ukraine and Israel remain another area of focus for global markets and will likely continue to act as such for the foreseeable future. Although there have been no new, major headlines regarding these conflicts, the risk of an expansion does remain. The threat of nuclear weapons use in the Russian/Ukraine war remains very real and may keep investors looking for safe-haven assets such as gold until the conflict is resolved. The threat of additional actors in the Israeli/Hamas war also remains very real. Iranian involvement would, for example, almost certainly invite the United States to become actively involved. With much firepower already in the region, the U.S. stands ready to take action should the need arise.
The next few weeks may see the gold market settle into an uninspired, sideways pattern. With many traders likely taking the remainder of the year off, the metal may need to wait until 2024 gets going before making another significant move up or down. The Bulls seem to have a clear advantage at this point, however, and may look to capitalize on that advantage. The bears will need some significant work done before having anything to get excited about, and their first target will be the $2,000 level. This level is likely to be heavily defended by the bulls, however, and could present an excellent buying opportunity for long-term investors. The path of least resistance remains higher for gold until proven otherwise.