The Federal Reserve Open Markets Committee (FOMC) meeting today is expected to confirm market expectations that the Federal Reserve (Fed) will remain on hold for the rest of the year, according to a latest update from the World Gold Council (WGC). This, in turn, will likely influence gold’s performance. Our historical analysis shows that when the Fed has shifted from a tightening to a neutral stance, gold prices have increased, even if this effect has not always been immediate. In our view, the combination of rangebound US interest rates, a slowdown in the appreciation of the US dollar and continued market risks will continue to make gold attractive to investors.

The WGC believes that the 20 March FOMC meeting, which will include the Fed’s projections report, will provide more clarity about their monetary policy expectations which, in turn, will offer further guidance about gold’s performance this year. Current bond prices reflected by the market, which tend to accurately include interim cues from the Fed, are signaling that the Fed will most likely be on hold during 2019 – and has a chance of a cut (15%) for the first time in several years.

While no clear evidence points to an immediate positive impact on the price of gold after the Fed pauses, historical analysis suggests that gold eventually reacts positively as the pause cycle extends and/or the Fed eases monetary policy. Historical post-tightening periods have shown an eventual strong gold performance, counterbalancing the performance of risk assets such as stocks or commodities, and complementing – sometimes even outperforming – assets such as Treasuries and corporate bonds.

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