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Gold Prices Rally As Fed Raises Interest Rates

Kitco News

(Kitco News) - Gold prices are higher as the Federal Reserve raised interest rates, as expected, by 25 basis points but keeps its outlook relatively unchanged from previous projections.

In its statement the U.S. said that the nation’s economic activity has expanded at “moderate pace,” unchanged from January’s meeting.

Ahead of the report, gold prices were trading in positive territory above around key support at $1,200 an ounce. In reaction to the statement and new projections, April Comex gold futures last traded at $1,210.20 an ounce, up 0.63%.

In its much anticipated statement, the Fed said that it is raising interest rates within a new range between 0.75% and 1.00%, up from the previous range between 0.50% and 0.75%. However, analysts have noted that markets are looking past this meeting, focusing on the trajectory through the rest of the year.

Gold is attracting some investor interest as the Fed keeps its interest rate projections to three rate hikes by the end of the year, unchanged from December.

In the latest interest rate projections, also known as the dot plots, the central bank’s median forecast is for interest rates to end next year around 1.4%, unchanged from December. The Fed sees interest rates around 2.1% 2018, also unchanged from the previous forecast. The central bank sees interest rates rising to 3% by 2019, compared to previous estimate of 2.9%.

The dot plots show stronger conviction for three rate hikes in 2017 with nine Fed members seeing interest rates ending the year around 1.50%, compared on six members in December.

Looking at growth, the Federal Reserve expects U.S. gross domestic product to grow by 2.1% in 2017, unchanged from December’s forecasts; economic activity is expected to hit 2.1% in 2018, up from 2% from the previous forecast; the U.S. economy is expected to grow 1.9% in 2019, also unchanged from the December projections.

The committee sees a relatively stable labor market for the next few years, expecting the unemployment rate to be 4.5% this year, next year and in 2019, unchanged from December’s forecasts.

The Fed left its inflation outlook unchanged from December with prices pressures to rise to 1.9% this year, 2.0% in 2018 and 2.0% in 2019.

The central bank only tweaked its core inflation expectations, which strip out volatile food and energy prices. The 2017 estimate was 1.9%, up from the previous forecast of 1.8% unchanged from the previous forecast. Inflation is expected to remain stable at 2.0% in 2019 and 2019.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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