Gold and silver prices both rocketed higher, as the dollar plunged following news that the FED would not hike interest rates in March. The FOMC kept the target range for the benchmark federal funds rate at 0.25% to 0.5%. While this lack of a hike was widely expected, the big news lighting a fire under commodities was that the FED shifted from a dot plot suggesting 4 rate hikes this year to one suggesting only 2.
The gold price shot up $31 to $1,263 and the silver price advanced by $0.36 to $15.61. These moves represent gains of roughly 2.5% and 2.4%, respectively. Gold regained over half of the pullback suffered over the past few days.
Gold and silver prices are now likely to continue their 2016 uptrend. However, gold still needs to clear $1,287 before we can be fully confident that the next upleg is underway. We believe the FED is backed into a corner and will be unable to hike rates as many market participants have anticipated. They scaled back forecasts for how high interest rates will climb in 2016, citing the potential impact from weaker global growth and financial-market turmoil on the U.S. economy.
The FED’s inability to raise rates will continue to be bearish for the USD and bullish for precious metals going forward. If anything, the FED may need to lower rates again or introduce a new form of monetary stimulus in order to keep the equity markets from crashing. It is certainly going to be an interesting year.
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