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Gold Prices Volatile After Federal Reserve Cuts Rates, Powell Press Conference

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Editor's Note: The article was updated a second time to reflect volatile price movements.

(Kitco News) - Resilance in the gold market is starting to fade after Fed Chair Jeremome Powell signaled that the central bank is in no major hurry to cut interest rate.

As of 3:48 p.m. December gold futures, were trading at $1,425.20 an ounce down 1% on the day following Powell's press conference where he signaled that the central bank's rate cut basically an insurance cut to keep the U.S.' historic expansion going.

Powell sent some mixed messages to markets saying that this isn't the start of a long easing cycle but it's not just a one-and-done cut.

"What we're seeing is that it's appropriate to adjust policy to a somewhat more accommodative stance over time," he said.

Phillip Streible, senior market analyst at RJO Futures, said tha the expects gold prices to remain volatile as markets digest all the comments from the U.S. central bank.

“If you are going to trade gold around the Fed you better strap in with a five-point harness,” said Phillip Streible, senior market analyst at RJO Futures, when describing the market’s price action.

Streible noted that the initial selloff was probably from disappointed traders expecting a more aggressive 50-basis point move.

Streible added that although it appears that the Fed action is an insurance cut, investors are not letting go of their gold as fear remains in the marketplace.

“Everything looks fine right now but there is still a lot of fear that the global economy will get a lot worse later this year and that will support gold prices,” he said.

August is historically a positive month for gold with prices rallying through the second half of the month through early September, the analyst pointed out. A pattern that has persisted 13 out of of the last 15 years.

In a widely anticipated move Wednesday, the U.S. central bank cut interest rates by 25 basis points, lowering the interest rate band to between 2.00% and 2.25%.

Looking past the rate cut, the Federal Reserve remains more upbeat on the U.S. economy, signaling less monetary policy action through the rest of the year.

“The labor market remains strong and that economic activity has been rising at a moderate rate,” the central bank said in its monetary policy.

The U.S. central bank appears to be leaving the door slightly open for further rate cuts later in the year as global uncertainty dominates financial markets.

“This action supports the Committee’s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain,” the statement said. “As the Committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion."

Avery Shenfeld said that the statement does not support market expectations that the Federal Reserve will cut interest rates at its next meeting in September. He added that the statement support higher bond yields and a stronger U.S. dollar, which are both negative for gold prices.

“The Fed opted to reiterate that it's base case is still for a sustained expansion with 2% inflation (no panic there), and opened by noting the solid recent news on labour markets and household spending,” he said. “That's not a clarion call for a back to back cut in September, so, for now, we'll stick to our view that the next cut might await the October FOMC, and that a second quarter-point reduction will be the last we see if the Fed's base case indeed pans out.”


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