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Gold price spikes as Fed's Powell sounds dovish, stresses asset purchases will continue 'until job is well and truly done'

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Editor's Note: The article was updated to reflect changes in prices.

(Kitco News) Gold price reversed losses and spiked during the Federal Reserve Chair Jerome Powell's press conference, which stressed that the central bank will continue its asset purchases until "the job is well and truly done."

The Federal Reserve kept rates unchanged on Wednesday, while committing to buying bonds until the economy reaches full employment.

“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 Fed’s statement said.

On top of that, the central bank said it will continue its massive monetary policy stimulus until its employment and inflation targets are reached.

“The Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee's maximum employment and price stability goals,” the statement noted.

February Comex gold jumped during Powell's press conference, last trading at $1,868.30, up 0.70% on the day. Earlier in the session, gold touched a low of $1,848.40.

The Fed also released its economic projections, noting that it is looking at a slowing economy and that the path forward largely depends on the course of the coronavirus. 

The central bank’s forecasts have largely improved in most areas. The Fed now projects for the economy to contract by 2.4% in 2020 versus the previous estimate of 3.7%. Economic growth next year is estimated to be 4.2% versus the previous forecast of 4%. In 2022, the Fed sees the economy growing by 3.2% and 2.4% in 2023.

The unemployment rate is projected to fall to 6.7% by the end of 2020 versus the previous estimate of 7.6%. Going forward, the situation will continue to improve with the rate dropping to 5% in 2021, 4.2% in 2022, and 3.7% in 2023.

Inflation is said to come in at 1.2% this year, 1.8% next year and then get up to 2% in 2023.

There were no significant changes in the dot plot, with rates expected to remain near zero until 2023.

“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved,” the statement said. 

During the press conference, which followed the central bank’s statement, Fed Chair Jerome Powell stressed that the next four-to-six months the situation will be difficult, assuring the markets that the Fed will signal well advanced before “starting to gradually taper the pace of purchases,” which is still far off.

“We do have the flexibility to provide more accommodation,” Powell added. “Purchases will continue until the job is well and truly done.”

Powell noted that any time the Fed feels that the economy could use stronger accommodation, the central bank would be prepared to provide it.

“The issue is getting through the next four-six months. Clearly, there is going to be a need for help there,” Powell said. “The coronavirus case numbers are so high and widespread, it seems that the impact on the economy will happen. You are seeing some slowing now and during the first quarter of next year.”

Powell estimated that the situation should get better in the middle of next year when people will start feeling comfortable going out and engaging in a broader level of activities. “During the second half of next year, the economy should be performing strongly,” he said.

Live 24 hours gold chart [Kitco Inc.]

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