Gold, Silver Explode Higher on Dovish Fed: Can Anything Stop the Rally Now?
After an unexpected surge to new all-time highs above $2,100 per ounce at the beginning of the month, gold underwent an equally dynamic correction.
A parallel scenario unfolded for silver, which once again fell short of breaking through the crucial resistance around the $26 per ounce mark.
However, the dynamics shifted with the Fed's final meeting of the year yesterday, marked by a decidedly dovish stance by Powell and his peers. This development brings us closer to a potential interest rate cut cycle, already starting in FOMC's March meeting.
On top of this, several macroeconomic conditions are aligning favorably with technical indicators for the precious metals market, setting the stage for another long-term bull, particularly for gold, which tends to thrive in a declining interest rate environment.
Even though it hasn't been officially declared, the end of the interest rate hike cycle seems imminent. This is evident from Jerome Powell's statements, stating:
«Committee members no longer see further interest rate hikes as appropriate, but they are also not ruling out such a possibility.»
While there's still a slightly open door for a return to increases, the likelihood is minimal and contingent upon a black swan event.
This sentiment is supported by the Fed's dot plots which indicate a strong inclination towards interest rate cuts in the upcoming years.
Source: The Fed
Currently, the median forecast for the future assumes a level of 4.6%, which implies at least four cuts of 25 bps each in 2024. The probability has also skewed sharply when it comes to the first interest rate cut, which points to 60% for March.
As a result, we are seeing declines in the valuation of the US dollar against most currencies along with
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