Gold prices to hit $1,600 in April and it’s not because of the Fed

The Federal Reserve is likely to pause after cutting rates for the third time this year on Wednesday, but that doesn’t mean the gold rally is over, according to analysts.

The consensus among analysts is that the Fed will cut rates by another 25bps this week while introducing a much more hawkish language into the monetary policy statement.

When cutting the last two times, Fed officials have pointed to fears of slowing economic growth, U.S.-China trade uncertainty, and low inflation as the main reason for lower rates.

This upcoming meeting will likely take the target range down to 1.5%-1.75% from 1.75%-2%, with the market anticipating a 94.6% chance of a rate cut on Wednesday, according to the CME FedWatch Tool.

Major changes ahead for the Fed

One of the biggest changes in the statement will likely be the Fed officials describing the third cut as an end to the “midcycle” adjustment that the Fed Chair Jerome Powell spoke about back in July, Goldman Sachs said in a report published last week.

“Strong signaling from Fed leadership indicates that the modest trade war de-escalation since September has not deterred them from completing a 75bp, 1990s-style ‘mid-cycle adjustment’,” Goldman economist Spencer Hill said.

Another major change could be the central bank removing its key phrase that it will “act as appropriate to sustain the expansion,” which has been present in each statement since June.

“We expect the ‘act as appropriate’ sentence to be replaced with a reference to the easing actions already delivered (mirroring the language in October 2007 and June 2008) coupled with the following less committal guidance: ‘will act as needed to promote its objectives,’” Hill wrote.

A hawkish tone from Powell should be expected: “Chair Powell will have a fine line to walk … to satisfy market participants … as well as the critics of insurance cuts … we expect a slightly hawkish tone, with Powell alluding to a baseline of unchanged policy but emphasizing data-dependence and the ability to respond quickly if the outlook deteriorates,” Hill added.

Gold will rally

The main takeaway for gold investors should be that gold will remain supported despite whether the Fed sounds dovish or hawkish, analysts said.

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