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Gold prices holding gains as Fed holds rates low through 2023

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(Kitco News) - The gold market is maintaining its buying momentum as the Federal Reserve expects to keep interest rates at current levels through 2023 as they look for economic growth to pick up.

As expected the Federal Reserve left interest rates unchanged within its zero-bound range. Although interest rates are expected to remain low, the central bank is slightly more optimistic on economic growth through the end of the year.

December gold futures last traded at $1,972.10 an ounce, up 0.30% on the day.

According to some commodity analyst, gold prices are reacting to the fact that the Federal Reserve is committed to letting inflation run hot.

“The committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time,” the central bank said in its monetary policy statement.

The Federal Reserve did note that economic activity is picking up but still remains below levels seen before the nation was deviated by the COVID-19 pandemic.

“The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term,” the statement said.

Adam Button, chief currency strategist at said that the Federal Reserve’s long-term outlook will continue to support the drive in equity markets as interest rates are expected to remain at current levels though 2023.

“For me, the 2023 forecasts are the real tell. They see 4.0% unemployment, 2.0% core CPI and still there's an almost universal commitment to keep rates at 0%. That tells you everything you need to know about the Powell Fed. It's a bonanza for risk assets,” he said.

However, he also said that he sees the gold market also doing well in this environment.

The following is a recap of the Federal Reserve’s economic projections.

In the latest interest rate projections, also known as the dot plots, the central bank's median forecast is for interest rates to be around 0.1% this year through to 2023. The projections noted long-term inflation will come in at 2.5%, unchanged from June’s forecast.

Looking at growth, the Federal Reserve expects U.S. gross domestic product contract by 3.7% this year, up from June’s estimated decline of 6.5%. However economic growth is forecasted to be lower for the next two years. Economic activity is expected to increase by 4% in 2021, down from June’s estimates of 5%; the economy is expected to grow 3% in 2022, down from the previous estimate of 3.5%. In the first look for 2023, the central banks expects to see growth of 2.5%

The committee is also optimistic that it will see a lower unemployment rate for the next few years. For 2021, the unemployment rate is expected to hover around 7.6%, down from June’s forecast of 9.3%. The unemployment rate is expected to fall to 5.5% in 2021, and 4.6% by 2022, down from the previous estimate of 6.5% and 5.5%, respectively. By 2023 the unemployment rate is expected to fall to 4.0%.

The U.S. central bank is also forecasting higher inflation pressures to build. The projections show inflation rising 1.2% this year, up from the previous estimate of 0.8%; inflation is expected to rise 1.7%, up from June’s forecast of 1.6%. In 2022, inflation is expected to rise 1.8%, up from the prior projection of 1.7%. By 2023, the central bank expects inflation to rise to 2%.

Core inflation expectations, which strip out volatile food and energy prices, are expected to push to 1.5%, up from June’s forecast of 1.0%; for 2021 core inflation is expected to rise to 1.7%, up from the previous projection of 1.5% and inflation in 2022 is expected to rise to 1.8%, up from June’s forecast of 1.7%. The central bank expects core inflation to rise to 2% by 2023.

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