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Gold Prices Bounce Higher As Fed Stays The Course, Leaves Rates Unchanged

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(Kitco News) - A cautious Federal Reserve, not anxious to raise interest rates faster than expected, is breathing new life into the gold market as prices bounce off recent four-month lows.

As expected, the Federal Reserve kept interest rates unchanged within a range between 1.50% and 1.75%. However, cautious comments from the central bank regarding inflation pressures have been positive for the yellow metal.

“Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance,” the statement 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.”

According to some economists, the “stay the course” policy stance indicates that the central bank is in no hurry to raise interest rates faster than they forecasted in March, which called for two more rate hikes this year.

Gold prices have struggled to find momentum as a result of a strong U.S. dollar, but have managed to hold in a well-established trading range above critical psychological support at $1,300.

The yellow has managed to bounce off its lows. June gold futures last traded at $1,311.50 an ounce, up 0.36% on the day.

Markets are focusing on the Federal's “symmetric” inflation objective, which could be an indication that the central bank will let inflation rise above 2% to make up for the previous months of lackluster price pressures.

Commodity analysts have said that gold could benefit from higher inflation pressures as it will keep real interest rates relatively low.

Royce Mendes, senior economist at CIBC World Markets, said that the Federal Reserve’s statement does not provide much guidance for a June rate hike. However, he added that CIBC is expecting a move, as the U.S. economy continues to expand.

“The lack of any firm commitment to a near-term rate hike has so far seen yields move lower and the dollar depreciate,” he said. “But we still see accelerating growth readings as justifying another move then.”

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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