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Gold Trims Daily Losses As Fed Minutes Signal A June Rate Hike

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(Kitco News) - Gold prices trimmed daily losses after Federal Reserve’s May meeting minutes signaled a rate hike in June.

The minutes showed that most Federal Reserve policymakers viewed another interest rate hike as being warranted “soon,” if the U.S. economic outlook holds up.

“Most participants judged that if incoming information broadly confirmed their current economic outlook, it would likely soon be appropriate ... to take another step in removing policy accommodation,” the minutes said.

June Comex gold futures were last at $1,294.00, up 0.15% on the day. Earlier in the session, gold touched daily lows after coming within about $2.00 of the psychologically important $1,300.00 level.

When it came to inflation, officials did not seem confident that it will remain at 2% - the target hit in the latest March reading.

“It was noted that it was premature to conclude that inflation would remain at levels around 2%, especially after several years in which inflation had persistently run below the Fed’s 2% objective,” the minutes said.

There were almost no concerns in regards to inflation running above 2%, with only a “few” policymakers thinking that it could move “slightly” above that target.

Live 24 hours gold chart [Kitco Inc.]

Analysts said the Fed was sending a “see you soon” message, noting that a June rate hike is looking more certain now.

“The Fed feels comfortable with having unemployment rates run below their long-run estimates of the full-employment rate, and are willing to tolerate a temporary overshoot on inflation,” said Avery Shenfeld, chief economist at CIBC Economics. “They still felt it was premature to conclude that inflation would remain at 2% after so many years below that level, but that didn't stand in the way of saying that the next rate hike would be ‘soon’.”

Following the release of the Fed minutes, CIBC said it projects two more rate hikes this year and another three in 2019. According to the CME FedWatch Tool, there will also likely be only two more rate hikes this year – in June and in September.

During May’s meeting, the Federal Reserve kept interest rates unchanged within a range between 1.50% and 1.75%.

“Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance,” the statement published on May 2 said. “Inflation on a 12-month basis is expected to run near the Committee’s symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.”

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 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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