(Kitco News) - Gold prices are holding support above $4,000 after the Federal Reserve left interest rates unchanged on Wednesday but signaled that it remains focused on bringing inflation down to its 2% target.
Although gold prices continue to consolidate around a key pivot point, TD Securities sees room for prices to move through year-end; however, they are also not looking for a rout in the marketplace.
In his latest note, Bart Melek, Head of Commodity Strategy at TDS, said that he is still expecting gold prices to remain vulnerable, caught in a range between $3,900 and $4,250 an ounce.
“While hawkish, the Fed decision was less hawkish than it could have been,” Melek said.
Although inflation pressures remain elevated, Federal Reserve Chair Kevin Warsh said that the committee decided to hold rates unchanged to be able to gather more information.
“The Committee believes that the accumulation of more information will help it determine the policy stance appropriate to ensure a timely return of inflation to the 2 percent goal. The Committee will deliver price stability,” he said in his opening remarks. “Since our policy action in September, we have started to see some changes in financial and credit conditions. They have tightened for some businesses and households, much as we would expect. Market participants are becoming somewhat more discerning in their capital allocations. And while overall financial conditions are tighter, I’m unwilling and unable to call them tight. But broadly, these developments go in the direction of achieving a longer, more durable period of economic growth and price stability.”
In reaction to Warsh’s comments, Melek said that despite the pause, the central bank is maintaining its tightening bias.
“We should expect higher rates down the road. However, increases will likely be modest, as the long end of the yield curve continues to be restrictive and price pressures are not massive, with inflation expectations well anchored,” he said. “Carry will be higher, and so will the opportunity cost of holding gold, as long yields remain elevated, suggesting that a material rebound is unlikely for now.”
Along with gold, Melek said that he expects silver will remain stuck between $50 and $55.
Despite the cautious tone, Melek remains relatively bullish on gold in the long term.
“Once inflation tilts toward the 2% target, the U.S. central bank will turn toward its maximum employment mandate, which should nudge gold back toward recent highs,” he said.
