Gold: The Fed is facing a difficult decision

At the end of last year, the various market turmoil had caused the gold price to rise sharply. In addition to the Brexit and the Sino-US trade dispute, there was also the prospect of a slowdown in the economy, which made the so-called safe haven more attractive to investors. In the first half of 2019, however, the situation had calmed down. The stock markets had a strong start to the year, while the gold price for a long time only moved sideways around the $ 1,300 mark. However, at the latest with the recent Fed meeting, momentum came into the gold market.

Last year, the US Federal Reserve raised interest rates four times. However, since the June meeting, market participants seem to be convinced that key interest rates will be lowered again for the first time in many years, during the July meeting on 30 and 31 July. These expectations were fueled, among other things, by the words of Federal Reserve Chairman Jerome Powell after the Fed meeting on 18 and 19 June. Accordingly, many members of the Monetary Policy Council (FOMC) would find a rate cut appropriate.

The outcome of the Fed’s June meeting saw a sharp rise in gold prices in the short term. The quotations cracked second-hand the mark of $ 1,400 per troy ounce and also shot to a new six-year high. The gold price reached its record high in the fall of 2011 at $ 1,921. Until then, however, it is a very long way. Especially since the tensions in world politics after the recent held G20 summit in Osaka, Japan seem to have settled a little.

The escalation of the situation in the Middle East following several attacks on oil tankers and the launching of a US drone and the trade dispute between China and the US had driven investors into security investments such as gold. However, an important outcome of the meeting between US President Donald Trump and Chinese leader Xi Jinping in the recent G20 summit is a kind of ceasefire in the trade dispute. Initially, both sides do not want to be overdone with further punitive tariffs and continue negotiations on a solution to the trade conflict.

In addition, Donald Trump, with his surprise meeting with North Korean leader Kim Jong-Un at the inter-Korean border, provided the prospect of a possible solution to important conflicts of our time. This would ensure that safe haven gold would likely be less in demand from investors. So it is to explain that the gold prices came under pressure shortly after the G20 summit and Trump’s historic visit to North Korea.In addition, the Fed’s July rate cut is anything but carved in stone. Donald Trump vehemently calls for one. Should the Fed fulfill this wish to the US President, regardless of whether the relevant data speak for it or not, this could lead to a loss of confidence. The central bank could no longer be considered as fully politically independent.