Gold Near 6-Week Low After Fed, Market Awaits More Data
Gold prices tumbled as investors digested a bullish statement from the U.S. Federal Reserve, which described weak Q1 growth as “transitionary.”
Spot gold on Kitco.com was trading at $1,237.80 during the opening hours of the Asian session, after briefly touching a low of $1,235.60 earlier.
Economists said that the biggest market mover was the Fed announcement, which kept the rate unchanged while downplaying weak first-quarter economic growth and noting strength of the labor market.
“The committee views the slowing in growth during the first quarter as likely to be transitory,” the Fed said in a unanimous statement.
Prior to the statement, analysts said to watch how the Fed interprets sluggish Q1 data, which it chose not to focus on. Many interpreted it as a sign that the Fed is still on track for two more rate hikes this year.
“[The statement said] that the slowing in growth over the first quarter appears to be transitory, and that the fundamentals underpinning healthy growth in consumption remain in place. The committee members didn't signal any additional concern that the recent cooling in prices was much of a risk to reaching their inflation mandate,” senior economist at CIBC World Markets, Royce Mendes, said in a note.
“The language appears to keep the door wide open to a June rate hike, if the data cooperates,” Mendes added.
Other economists seemed to be in agreement, leaning towards a June hike. “By referring to the weakness in Q1 as transitory, this is the closest to a hint we have that a June hike remains a strong possibility,” said global head of currency strategy at BBH, Marc Chandler.
“Attention will now turn to Friday's payrolls to get the ball rolling on that front,” noted Mendes.
Economists expect the April jobs count to include 175,000 added jobs, according to a survey by Reuters.
Another important event to keep an eye on is the second round of the French election on Sunday, with centrist Emmanuel Macron facing off against the far-right candidate Marine Le Pen.
Emmanuel Macron is leading the race, making Le Pen’s win unlikely, Brian Lan, managing director at gold dealer GoldSilver Central, told Kitco News. “Macron’s win will see capital flows once again go back to riskier assets . . . and gold will go down, as there is nothing much to hedge against for a safe-haven asset,” he said.