Gold Prices Holding Above $1,200, Seeing Little Reaction To Fed Minutes
(Kitco News) - The gold market is holding support above $1,200 an ounce as the Federal Reserve remains optimistic on the U.S. economy and continues to see a gradual rise in interest rates, according to the minutes of the monetary policy meeting at the start of the month.
Gold is seeing little reaction to the minutes as there were few surprises in the comments from central bankers. Markets are already anticipating a rate hike in September. Markets are currently pricing in a more than 90% chance of a rate hike next month.
December gold futures last traded at $1,204.20 an ounce, up 0.33% on the day.
Not only did the committee members remain optimistic on the U.S. economy, but they were also confident that inflation pressures would pick up, along with wages.
"Some participants expected a pickup in aggregate nominal wage growth to occur before long, with a number of participants reporting that wage pressures in their Districts were rising or that firms now exhibited greater willingness to grant wage increases," the minutes said. "Many participants anticipated that, over the medium term, high levels of resource utilization and stable inflation expectations would keep inflation near 2 percent."
Although the U.S. economy is expected to grow through the rest of the year, some committee members noted that the pace of growth could slow in the second half of the year. The comments come after U.S. Gross Domestic Product increased by 4% in the second quarter.
"Several participants stressed the possibility that real GDP growth in the second quarter may have been boosted by transitory factors, including an outsized increase in U.S. exports. For the second half of the year, participants generally expected that GDP growth would likely slow from its second-quarter rate but would still exceed that of potential output," the minutes said.
However, the committee also recognized growing economic storm clouds on the horizon. One risk mentioned in the minutes was the quickly fading stimulus effects from the U.S. government's tax cuts. The committee also acknowledged growing threats of the government's trade disputes.
"All participants pointed to ongoing trade disagreements and proposed trade measures as an important source of uncertainty and risks. Participants observed that if a largescale and prolonged dispute over trade policies developed, there would likely be adverse effects on business sentiment, investment spending, and employment. Moreover, wide-ranging tariff increases would also reduce the purchasing power of U.S. households."