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Fed's loose monetary policy supports long-term gold price rally - analysts

Kitco News

(Kitco News) - Tuesday was gold’s worst day in nearly 2.5 months and although prices fell below $1,500 an ounce, analysts remain optimistic over the precious metals long-term prospects.

While analysts can’t rule out more selling pressure in gold — some estimate that gold prices could fall as low as $1,425 and still maintain its long-term uptrend — the gold market has recovered some of Tuesday’s loses. December gold futures last traded at $1,492.40 an ounce, up 0.58% on the day.

Looking at the long-term picture, analysts have said that they remain optimistic on gold after last week’s Federal Reserve monetary policy decision provided a firm floor in the marketplace.

After hiking interest rates for the third consecutive time since July, the Federal Reserve struck a fairly neutral tone last week. However, analyst note that gold investors are focusing on the high bar the central bank set for future rate hikes. During his press conference following the central bank’s monetary policy meeting, Federal Reserve Chair Jerome Powell said that the committee would need to see a “significant” move up in inflation before they considered a rate hike.

“That message has really set the tone for a long-term gold rally,” Adam Button, managing director at Forexlive, said in a recent interview with Kitco News. “The Federal Reserve has basically said that no matter how good the economic data gets, they won’t be raising interest rates. That is good for gold.”

Button noted that because of the Fed’s stance, interest rates will remain low, which lower’s gold opportunity costs as a non-yielding asset. Looking at U.S. bond yields, although the interest rate on the 10-year note has pushed higher in recent days, it is still well off the highs seen at the start of the year.

Currently the real yield on the 10-year bond is at 54 basis points.

Although the U.S. central bank is ready to hold the line on interest rates, markets still see an easing bias. The CME FedRate Watch tool shows that markets are forecasting the next rate cut by July 2020.

“The long-term case for gold remains strong,” said Button.

Phillip Streible, senior market analyst at RJO Futures, also sees last week’s monetary policy meeting as bullish for gold in the long-term.

He noted that gold still looks attractive even if investors are becoming more upbeat on the U.S. economy.

Streible said that in the current environment gold prices could rally alongside the record valuation in equity markets.

“The Fed has said that it is not going to raise interest rates until there is a material change in inflation. We are not going to see that scenario for years,” he said. “Cheap money is going to continue to drive equity markets higher, but gold should do well as a hedge against risk.”

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.