The FED has announced a huge interest rate cut of 0.25%, as expected, dropping from 2.50% to 2.25%. As a result, markets pricing a weaker gold, stronger US dollar, XAU/USD.
Historically interests rate cuts lead to an increase in gold pricing, as individuals usually look to invest in a ‘fail-safe’ good i.e. gold, when interest rates fall and incentives for saving dwindle. As National savings (private savings + public savings) is equivalent to Interest rates, common practice would be for savings rates to decrease as interests rates fall.
However, it appears that a lot of the upward movement has already been priced in over the past few weeks, in anticipation of the rate cut. Gold was already down $4.00 per ounce before the announcement, now we’ve dropped from 1430.00, with an initial retest pattern testing to break out the consolidation zone, all the way down to 1415.00, with a lot more room for downward movement. Reversals are a possibility but momentum is strong to the down side. This was the initial reaction on the 1st August when the FED made the announcement. Since then golds stabilized and is predicted to continue trading within its consolidation.
Following the FED’s announcement, a huge drop occurred, falling to the support zone around the 1400 mark, established back nearing the end of June. President Trumps tweet, stating a 10% tariff increase on Imports form China sent gold skyrocketing again. Breaking through the resistance, with upward momentum expected to carry it to the top.
Could still find resistance at the high mark of 1446.20.
