Gold Prices Surge on Fed’s Dovish Turn; Six-Year Highs on the Horizon

Gold rose to nine-month highs on Thursday after the Federal Reserve removed gradual interest rate hikes from its forward guidance, highlighting the central bank’s capitulation in the face of market instability.

Bulls Extend Rally

Precious metals extended their rally on Thursday, with gold and silver notching fresh highs. Gold for April delivery peaked at $1,331.10 a troy ounce on the Comex division of the New York Mercantile Exchange, its highest since April. At last check, bullion was up $13.10, or 1%, at $1,328.60 a troy ounce.

March silver futures climbed 26 cents, or 1.7%, to $16.19 a troy ounce, the highest since July.

Both metals have been on a torrid pace since November, which was a period of extreme volatility for stocks and other risk-on assets. The dollar, which often trades inversely with precious metals, has been choppy in recent months.

The U.S. dollar index (DXY) is currently trading at 95.32, where it was little changed on the day.

Fed Preaches Patience

The Federal Reserve on Wednesday said it would adopt a “patient” approach in deciding the future of monetary policy while maintaining an “ample” balance sheet. The revised language soothed investors’ fears of an aggressive tightening cycle. While this doesn’t exclude the possibility of future rate hikes, it probably lowers the chances in the near term.

“In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes,” the central bank said in a statement Wednesday that concluded its two-day policy meeting.

Most traders have disavowed the idea that the Fed will raise interest rates at all this year. Fed Fund futures prices, courtesy of CME Group, suggest that a rate cut is more likely than a rate hike.

Rosy Outlook

The case for gold will only strengthen in 2019, as global recessionary fears trigger renewed demand for safe haven assets, according to Goldman Sachs’ head of commodities research Jeff Currie.

Appearing on a recent episode of Bloomberg Surveillance, Currie said gold could reach six-year highs in 2019. In addition to increased physical demand for bullion, “recessionary fears are raising physical demand for gold,” he said. On top of that, central banks will play a big role in propelling prices toward $1,450 a troy ounce. Gold last traded here in 2013.

Gold is rising at a time when demand for bitcoin and other virtual currencies is declining. Some have speculated that bitcoin’s 2017 bull market may have taken some of the demand away from bullion as a store of value. Bitcoin’s subsequent drop has also been accompanied by rising demand for the yellow metal. More on this story: Is Bitcoin Influencing Demand for Gold?

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Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi