On Wednesday afternoon in trading immediately after the Fed statement — in which it left rates unchanged and said it expected only two rate hikes this year, not four — gold and the stock market moved higher, while the dollar declined. Gold bugs were not surprised. But historically, the recent post-FOMC trading pattern for gold hasn't shown major swings, just slightly negative returns.
Axel Merk, president and chief investment officer at Merk Investments, which runs the Van Eck Merk Gold Trust (OUNZ) ETF, said the reaction from investors immediately after a Fed statement is not how a trade will ultimately play out, so he takes the immediate reaction with a grain of salt. "You can interpret it any way you want," Merk said. He still believes the stock market is due for a dip and if that occurs gold is supported as a risk diversifier. "We've had a rally now for weeks and the Fed wants what they say to have the least amount of damage," Merk said.
On Wednesday, the market interpreted a more dovish Fed behind the wheel of the economy and both gold and equities rose in tandem. Merk said the FOMC minutes may induce short-term volatility, because investors and traders move to the sidelines ahead of the event, which reduces liquidity and increases the ability of the markets to be "yanked around."
There's been reason in recent history to stay out of gold — or, in the least, sit on the sidelines — in the immediate aftermath of an FOMC statement during the Yellen era.
Data from Kensho, which runs historical analysis of trade scenarios, showed in the one, two and three trading days after an FOMC statement since Janet Yellen became Fed chair, gold exchange-traded funds (ETF) and gold miner exchange-traded funds traded negative to a limited degree.
The major gold etfs, SPDR Gold (GLD) and iShares Gold (IAU), were both negative by on average 0.50 percent in the three days after FOMC statements dating back to March 2014. For gold mining ETFs, such as Market Vectors Gold Miners (GDX) and iShares MSCI Global Gold Miners (RING), the post-FOMC immediate return was roughly three times as bad, at negative 1.4 percent, which is not surprising, since this niche is more or less a leveraged bet on the performance of the precious metal.
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