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Gold price drops, down 3% on the day after Fed minutes push back on yield curve control program

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(Kitco News) - The gold market remains under pressure, falling to session lows after the Federal Reserve said it saw little benefits from a yield curve control program, according to the minutes from the central bank's July monetary policy meeting.

Selling pressure in the gold market picked up as the minutes from the July monetary policy meeting show some reluctance from the Fed to cap bond yields. December gold futures last traded at $1,951.90 an ounce down 3% on the day.

At the same time, the latest minutes shed little light on any new initiatives from the central bank. The committee also didn’t rule out a use of a yield cap if financial conditions worsen.

“Of those participants who discussed this option, most judged that yield caps and targets would likely provide only modest benefits in the current environment,” the minutes said.  “In light of these concerns, many participants judged that yield caps and targets were not warranted in the current environment but should remain an option that the Committee could reassess in the future if circumstances changed.”

Although it appears that a yield curve control program is off the table for now, the minutes said that the central bank is ready to act if the economy continues to slow.

“Participants reaffirmed their commitment to using the Federal Reserve’s full range of tools to support the U.S. economy during this challenging time,” the minutes said. “They noted that the path of the economy would depend significantly on the course of the virus and that the ongoing public health crisis would weigh heavily on economic activity, employment, and inflation in the near term and posed considerable risks to the economic outlook over the medium term.”

Not only has the Federal Reserve pushed back on the idea of capping bond yields, but economists note that it appears the Federal Reserve is in a transition period as it weighs its monetary policy response in reaction to the ongoing COVID-19 pandemic.

“A number of participants noted that providing greater clarity regarding the likely path of the target range for the federal funds rate would be appropriate at some point,” the minutes said. “More broadly, in discussing the policy outlook, a number of participants observed that completing a revised Statement on Longer-Run Goals and Monetary Policy Strategy would be very helpful in providing an overarching framework that would help guide the Committee’s future policy actions and communications.”

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