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Gold prices drop as FOMC minutes shows some central bankers supported a 50-bps hike in February

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(Kitco News) - Gold prices are trading near session lows as the minutes from the Federal Reserve's February monetary policy meeting show some members supported further aggressive action.

At the start of the month, in a widely anticipated move, the Federal Reserve unanimously decided to raise interest rates by 25 basis points; however, the minutes show that some members favored a 50 basis point move.

"A few participants stated that they favored raising the target range for the federal funds rate 50 basis points at this meeting or that they could have supported raising the target by that amount. The participants favoring a 50-basis point increase noted that a larger increase would more quickly bring the target range close to the levels they believed would achieve a sufficiently restrictive stance, taking into account their views of the risks to achieving price stability in a timely way," the minutes said.

While gold prices have dropped into negative territory in initial reaction to the minutes, the price action remains fairly muted. April gold futures last traded at $1,838.40 an ounce, down 0.22% on the day.

Not only did some central bank committee members support more aggressive action, but the entire committee agreed that more rate hikes would be needed to bring inflation down. The minutes also showed that the Federal Reserve wants to maintain its aggressive policy stance for longer than initially expected.

"With inflation still well above the Committee's longer-run goal, participants generally noted that upside risks to the inflation outlook remained a key factor shaping the policy outlook, and that maintaining a restrictive policy stance until inflation is clearly on a path toward 2 percent is appropriate from a risk management perspective," the minutes said.

One positive for the gold market is that the central bank does see further downside risk to the economy and the possibility of a recession.

"Participants agreed that the risks to the outlook for economic activity were weighted to the downside. Participants noted that sources of such risks included the prospect of unexpected negative shocks tipping the economy into a recession in an environment of subdued growth, the effects of synchronous policy firming by major central banks, and disruptions in the financial system and broader economy associated with concerns that the statutory debt limit might not be raised in a timely manner," the minutes said.

Paul Ashworth, chief North America economist at Capital Economics, noted that given the recent comments from Fed officials its not too surprising that some members supported a 50 basis point hike.

“The more pertinent question now is how will Fed officials react at the upcoming meeting this month to the run of stronger January data releases? Will they just take it as support for their existing views or see that strength as a reason to add more hikes to their projections? We suspect the majority will favour mostly the former, particularly since unseasonable weather and seasonality problems may have played a role,” he said.

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.