Gold gained after the Fed, dollar weakest in a month

After weeks of waiting for interest rates to rise in the US, gold regained its luster. The Federal Reserve announced the first of a series of hikes on Wednesday, but the price of gold remained defiant. From around the psychological barrier of $1,200 per ounce, it soared by nearly 2% and easily held its ground until the end of the week.

On Monday and Tuesday, Western markets were sharply divided. In the US, trading was exceptionally sluggish as investors awaited the Fed meeting, but in Europe there was more going on at the time. The parliamentary elections in the Netherlands were supposed to reveal the true mood on the Old Continent and indicate the direction Europeans may want to take in the upcoming elections in France and Germany.

Such uncertainty always encourages individual investors to buy physical gold, but this time it was not enough to push the price of the metal higher, especially in the face of a fairly strong dollar. As a result, the first half of the week saw only slight fluctuations in the range of $1,198.60-1,210.60/oz.

Wednesday brought the response that everyone had expected, and which, according to many analysts, had already been factored into the price of gold. The Fed raised interest rates by 25 basis points and cautiously announced further increases, which would be introduced gradually (up to three per year) in the coming years. 

However, market expectations regarding the pace of the Fed's actions, recently inflated by a wave of positive data, were clearly higher, and after the conference, the dollar fell to its lowest level in two weeks, while gold jumped 1.5% almost immediately.

On Thursday, the dollar continued to weaken, while gold benefited from reports of Scotland's plans to remain in the EU and break away from the UK, as well as the weak but still significant result of the anti-Islamic Freedom Party in the Netherlands. Geert Wilders' party won fewer votes than many feared, but that does not change the fact that it came second in the election. And given the extreme nature of Wilders' views, the more moderate Marine Le Pen may fare much better in the French presidential race.

Friday stabilized gold prices above $1,225 per ounce. Purchases of the yellow metal by SPDR Gold Trust, the world's largest gold-based fund, almost offset last week's outflows, and the market situation seems to be returning to normal. Investors ended the week with interest in the G20 meeting over the weekend and are keeping a close eye on developments. If a safe haven proves necessary again, gold can only benefit.

Meanwhile, last week on the Polish market brought investors a slight decline, due to the sharp fall in the dollar. The price of gold at the close of last week – based on the London fixing and the average dollar exchange rate according to the National Bank of Poland – was PLN 4,908/oz.

Marianna Wodzińska
Head of Trading
Mennica Skarbowa S.A.