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The Federal Reserve will begin a "reversal" of monetary policy



(Kitco News) – The Federal Reserve began its first monetary policy meeting this year, and according to one fund manager, this will be the last central bank to signal a shift in its monetary policy, which ultimately will lead to higher prices for gold.

The gold market rose to its highest level in seven months, as prices hold above $ 1,300 per ounce. The April gold futures last traded at $ 1,314.70 an ounce, up 0.39% on the day.

The gold movement began as the Federal Reserve is expected to issue a bluish tone in its monetary policy statement and in a subsequent press conference by Central Bank Governor Jerome Powell. Central bank officials, including Powell, did not dare signal a further tightening of monetary policy after it was raised in December. In two events at the beginning of the year, Powell said that because of low inflationary pressure, the Federal Reserve could be “patient” in raising interest rates. According to media reports, the central bank can also signal a slowdown in its balance reduction program, which Powell previously described as an autopilot.

Ronald-Peter Stofferle, fund manager at Incrementum AG

Ronald-Peter Stofferle, fund manager at Incrementum AG and author of the In Gold We Trust annual report, told Kitco News in a recent telephone interview that he was not surprised that the central bank was hoping for a bluish monetary policy shift.

“We have seen that this monetary“ reversal ”comes some time, starting from the beginning of the fourth quarter of last year, he said. “The first central bank to take action was the People’s Bank of China, which lowered reserve requirements in October. The Federal Reserve has just joined other central banks. It is no coincidence that gold prices began to gain momentum in the fourth quarter of last year. ”

The decision of the Federal Reserve System will be made a week after the Bank of Japan and the European Central Bank will highlight the growing risks to the global economy.

Along with growing concerns about economic growth, Stofferle said it would be difficult for central banks to tighten monetary policy, as market volatility increased with investor fluctuations and market liquidity declined.

Stolferle noted that in 2018, central banks first tried to remove some liquidity from the market after a decade of stimulus.

“Central banks have been trying to get out of this trap with a zero interest rate, but they are not able to. The market is dependent on cheap liquidity, and I do not think it will change soon. There is no way out for traps that fall into this trap, ”he said. "Gold is very good in this environment."

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