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Gold Prices Rally As Fed Will Be Patient On Future Hikes

Kitco News

(Kitco News) - Gold prices continue to hold on to recent gains and are trading near an eight-month high as the Federal Reserve massages its outlook on the U.S. economy and future monetary policy.

As expected the Federal Reserve left interest rates unchanged in a range between 2.25% and 2.50%, following its first monetary policy meeting of 2019. Although the central bank sees strong economic growth, it noted rising economic risks in the global economy.

“In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes,” the Fed said in its statement

Gold prices were trading relatively unchanged on the day and have pushed higher in initial reaction to the U.S. central bank’s monetary policy statement. April gold futures last traded at $1,322.10 an ounce, up 0.52% on the day.

Despite the nod to growing global economic risks, the central bank remains fairly optimistic.

“The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes,” the bank said.

The central bank also remains optimistic on inflation.

“Although market-based measures of inflation compensation have moved lower in recent months, survey-based measures of longer-term inflation expectations are little changed,” the statement said.

Markets and investors will be keen to hear what Federal Reserve Chairman Jerome Powell has to say as a press conference will now follow every monetary policy meeting.

Since December’s rate hike, Powell has struck a relatively dovish tone in recent interviews, saying that the central bank can be patient on future rate hikes as inflation remains relatively tame.

Royce Mendes, senior economist at CIBC World Markets said that Treasuries have rallied, pushing bond yields lower and the U.S. dollar has sold off as the tone in the monetary policy statement were more dovish than expected. Both market moves have been bullish for gold prices.

“It came as no surprise that the Fed chose to hold rates steady today, but officials went a few steps further. The statement removed the reference to further gradual increases in the funds rate,” he said. “Instead, policymakers are now stating that they will be patient in assessing the need for future adjustments, and were notably agnostic about the direction of such potential moves.”

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