Gold Prices Bounce Higher As Fed Stays The Course, Leaves Rates Unchanged
(Kitco News)- A cautiousFederal Reserve, not anxious to raise interest rates faster than expected, isbreathing new life into the gold market as prices bounce off recent four-monthlows.
As expected, the Federal Reserve kept interest rates unchanged within a range between 1.50% and 1.75%. However, cautious comments from the central bank regarding inflation pressures have been positive for the yellow metal.
“Market-basedmeasures of inflation compensation remain low; survey-based measures oflonger-term inflation expectations are little changed, on balance,” thestatement said. “Inflation on a 12-month basis is expected to run near theCommittee’s symmetric 2 percent objective over the medium term. Risks to theeconomic outlook appear roughly balanced.”
According to some economists, the “stay the course” policy stance indicates that the central bank is in no hurry to raise interest rates faster than they forecasted in March, which called for two more rate hikes this year.
Gold prices have struggled to find momentum as a result of a strong U.S. dollar, but have managed to hold in a well-established trading range above critical psychological support at $1,300.
The yellowhas managed to bounce off its lows. June gold futures last traded at $1,311.50 an ounce, up 0.36% on the day.
Markets are focusing on the Federal's “symmetric” inflation objective, which could be an indication that the central bank will let inflation rise above 2% to make up for the previous months of lacklusterprice pressures.
Commodity analysts have said that gold could benefit from higher inflation pressures as it will keep real interest rates relatively low.
Royce Mendes, senior economist at CIBC World Markets, said thatthe Federal Reserve’s statement does not provide much guidance for a June rate hike. However, he added that CIBC is expecting a move, as the U.S. economycontinues to expand.
“The lack of any firm commitment to a near-term rate hike has so far seen yields move lower and the dollar depreciate,” he said. “But we stillsee accelerating growth readings as justifying another move then.”
By Neils ChristensenFor Kitco News
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