Gold rebounds from 1-week trough amid stimulus hopes, economic recovery concerns

US Dollar Index Price Chart FOMC Decision September 2020

US Dollar Index Price Chart FOMC Decision September 2020

Wall Street's benchmark S&P 500 index closed down 0.5 percent after the Fed said it will not raise interest rates until inflation reaches 2 percent, which the U.S. central bank's own projections show it does not expect until late 2023.

"Many were hoping for more clarity on how the Fed plans to stoke inflation in the coming months", Kitco Metals senior analyst Jim Wyckoff said in a note. "That's not something the market likes to see". What resulted was an unprecedented expansion of its balance sheet.

The recovery, Powell noted, is expected to slow, requiring continued support from further government spending and, he said, the Fed, which is continuing to debate further actions including a possibly faster pace of bond buying.

To meet the hurdle on inflation rising to 2%, Powell said Wednesday, it wouldn't be enough for inflation to hit 2% for just one month and then fall back.

While the Fed did reframe the goal of its purchases - from strictly an issue of market functioning to one tied to supporting the economic recovery - Mr Powell did not signal an imminent adjustment either in the scope or scale of the programme. "And the somewhat dour tone from the Fed could weigh on investors".

According to the technical analysis of gold: Recent decline in gold prices is an opportunity to think of new buying levels, and the most appropriate ones will now be 1933, 1920 and 1900, respectively.

All eyes remain on central bankers and their role in propping up economies still reeling from the coronavirus shock.

Boris Johnson considering short second coronavirus lockdown as cases rise
There will be approximately 4,000 infections a day, doubling every eight days, and 128,000 new daily cases by the end of October. On Friday, the daily number of new coronavirus cases hit 4,322 - the highest since May 8.

Longer term, the Fed's announcement on Wednesday helps the trends that were already in place, investors said. Conventionally, there has been a belief that low unemployment results during quite high inflation and central bank officials have proactively gone ahead to prevent it. It is projected at 9.3 per cent in 2020, moving down to 6.5 per cent and 5.5 per cent in 2021 and 2022, respectively.

Aside from political uncertainty Boris Schlossberg, managing director of FX strategy at BK Asset Management said Japan's policy of yield curve control was also a factor as it was pushing up real interest rates.

Investors acknowledge that the Treasury department, which has provided a backstop for the MSLP, may also have to change its approach.

"It's a range of factors", he said. President Donald Trump said late Wednesday that the US could distribute a vaccine as early as October, contradicting the director of the Centers for Disease Control and Prevention, who told lawmakers earlier in the day that vaccinations would be in limited quantities this year and not widely distributed for six to nine months. Now, the United States economy is "crying out for fiscal stimulus". "And the question is, how do you dial that in?" The dollar index, which tracks the movement of dollar against some of the important currencies, declined slightly after the meeting.

The number of Americans filing new claims for unemployment benefits fell less than expected last week, with almost 30 million people on unemployment benefits at the end of August, indicating the labour market recovery losing steam amid fading fiscal stimulus.

"The direction is a very sensible one", said Randall Kroszner, deputy dean of the University of Chicago's Booth School of Business and a former Fed governor.

"And that's that the labor market has been recovering but that it's a long way, a long way from maximum employment", he said.

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