Falling Dollar Boosts Gold After FOMC Meeting

The Federal Reserve’s Open Market Committee just concluded their March policy meeting and it certainly gave traders plenty to chew over heading into Q2. Traders were hyper-focused on whether the central bank would remove its “patient” pledge (before raising interest rates) and on that front, the Fed did not disappoint. As most analysts expected, Yellen and company removed the “patient” terminology; to use a gardening analogy, it looks like the economy’s proverbial “green shoots” have finally morphed into impatiens!

The central bank revised lower its forecasts for GDP, unemployment, and core PCE inflation for each year out to 2017. Interestingly, the central bank revised down its long-term forecast of the Non-Accelerating-Inflation Rate of Unemployment to 5.0-5.2%, meaning there is less urgency to raise rates with unemployment still well above that level.

Almost everything beyond the US dollar was trading higher in the wake of the Fed’s statement.

The plunge in U.S. interest rates pulled the dollar lower today in heavy trading as shown by a 1.8% drop in the PowerShares Dollar Bullish Fund (UUP) on the first chart. That gave a boost to commodity prices which ended the day higher.

dollar_18_March_2015

The second chart shows the Gold SPDR (GLD) bouncing $21 (+1.9%) off its November low. Gold benefits from a weaker dollar and lower interest rates. Gold and energy stocks were among the day’s biggest winners.

GLD_18_March_2015

 

Source: Matthew Weller and StockCharts.

 

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