Stocks and Gold surge on recent central bank statements….

After Mario Draghi, it was the Jay Powell’s turn to cheer the market. The Fed, in particular, promised that it would ‘act as appropriate to sustain the expansion.’ This means that the central bank has, more or less, abandoned its previous hawkish path.

According the latest FOMC ‘dot projections’, expectations have come down from previous levels, ie, the policy rate is expected to stay below 2.5% in 2019 (see below).

With this, equities have continued their rallies into multi-week highs. The blue chip S&P 500 Index, for example, has almost erased its recent correction. Prices have rebounded near its all-time highs near 2,950. Judging from the pattern of higher marginal highs since early 2018, it is possible that the index may advance to the major psychological level at 3,000 (see Featured Chart).

Figure – FOMC participants’ assessments of appropriate monetary policy: Midpoint of target range or target level for the federal funds rate (source)

More impressive is gold’s rally today. Prices have jumped through the $1,360 resistance to trade at its highest level in months. This latest price rally is likely to sustain the yellow metal all the way above $1,400. Trailing stops are recommended.


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