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Gold Edges Down As Fed Minutes Offer Clues Into January's Policy Reversal

Kitco News

Gold Edges Down As Fed Minutes Offer Clues Into January's Policy Reversal

(Kitco News) - Gold prices nudged slightly lower following the release of the January’s Federal Reserve monetary policy meeting minutes, with the overall market reaction remaining fairly muted.

April Comex gold futures were last trading at $1,342.20, down 0.19% on the day, after hitting fresh 10-month highs earlier in the session.

The January minutes revealed that the Fed officials discussed concerns around slower global economic growth, especially in China, noting that some downside risks have increased since the December meeting.

The officials also noted that business investment had moderated and it is important to keep a close eye on the financial markets.

In addition, the minutes highlighted that there are risks to the U.S. economic growth, which has been moderating after last year's strong gains.

On top of that, Fed officials reconfirmed that the Fed will continue to be patient and data-dependent when it comes to future rate hikes.

“Many participants suggested that it was not yet clear what adjustments to the target range for the federal funds rate may be appropriate later this year,” according to the minutes released on Wednesday. “Several of these participants argued that rate increases might prove necessary only if inflation outcomes were higher than in their baseline outlook.”

When it came to discussing the unwinding of the Fed balance sheet of securities, Fed officials said that the balance sheet run-off could end later this year.

“Almost all participants thought that it would be desirable to announce before too long a plan to stop reducing the Federal Reserve’s asset holdings later this year,” the minutes said.

At the January meeting, the U.S. central bank singled a dovish shift by leaving interest rates unchanged in a range between 2.25% and 2.50% and stating that it will be “patient” on the future direction of monetary policy.

“The case for rate increases has diminished,” Fed Chair Jerome Powell said following the central bank’s decision. “I would need to see a reason for further rate hikes that would have to include higher inflation.”

The Fed also removed the December reference to “some further gradual [rate] increases” being warranted.

This shift came after the Fed raised rates four times in 2018 and markets were expecting to see at least another two rate hikes in 2019.

Analysts noted that the minutes did not offer any new ifnormation significant enough to impact the market.

“While the FOMC minutes did not contain any surprises, it appears short-term gold traders took the opportunity to take some profits after the report and following recent strong gains,” Kitco’s senior technical analyst Jim Wyckoff said. “The recent change in Fed policy stance to one of more accommodative monetary conditions has been a significantly bullish underlying factor for several commodity markets, including the precious metals. It’s also been bullish for world stock and bond markets.”

However, the minutes were slightly more hawkish than the markets anticipated, noted CIBC Capital Markets senior economist Royce Mendes.

“Many participants were unclear as to what changes would need to be made to Fed funds later this year. However, several still believed that the most likely path in rates was still higher if the economy evolves as expected,” Mendes said. “Overall, investors are reacting to the ever-so slightly hawkish tilt of several members, bidding up the greenback and pushing yields at the short-end a little bit higher.”

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