FOMC: Slightly dovish Fed fuels gold rally – Goldman Sachs

According to the analysts at Goldman Sachs, Gold rallied (1.5%) after the Fed statement was a bit more dovish than the market had anticipated and while the rate hike came as expected, the FOMC maintains its previous projection of 3 rate hikes in 2017.

Key Quotes

“Also, while the description of inflation was upgraded to “moving close to” the 2% target, this was balanced by inflation excluding energy and food prices was still short of 2%.”

“What to watch for next? The key events to look out for remain US data releases, especially the CPI, ISM manufacturing and non-manufacturing indexes and job numbers.”

“What is our view? We believe that while both a bull and a bear case can be made for gold, in the near term, risks remain skewed to the downside (strong US economic data combined with a pick-up in global demand indicators may lead to rotation out of gold). Our economists recently suggested that the Fed might be slightly behind the curve: this could require faster tightening than the market is currently pricing in, a potential negative for gold.”

“How to position within the sector? While gold has rallied, we believe the outlook remains a bit uncertain. As such, we prefer equities which can generate cash at spot (c.US$1,200/oz) and that can ramp-up shareholder returns. We would expect these stocks to outperform those that are not generating FCF.”