Bond Yields Weigh On Gold Following No Surprises From FOMC
Editor's Note: The article was updated to reflect a delayed selloff in gold following the FOMC monetary policy decision.
(Kitco News)- In a delayed reaction to the Federal Reserve's rate announcement, gold prices fell into negative territory, unable to withstand rising bond yields, as the central bank emphasized that interest rates will be going up in 2018.
As expected, the U.S. central bank kept interest rates unchanged within a range between 1.25% and 1.50%. At the same time, thecommittee provided little insight into the future of its monetary policy but continued to emphasizethat interest rates will be moving higher through 2018.
"The Committee expects that economic conditions will evolve in a manner that willwarrant further gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run," the statement said.
"With further gradual adjustments in the stance of monetary policy, economic activity will expand at amoderate pace and labor market conditions will remain strong," the statement said.
Economists were not expecting much from the Federal Reserve as this is the last meeting for Fed Chair Janet Yellen. Markets are projecting that the central bank will raise interest rates at its March meeting when JeromePowell takes the helm.
Ahead of the report, the gold market was fighting to hold on to daily gains but was unable to withstand a rise in U.S. bond yields. Yields on 10-year treasury notes pushed to a high of 2.75%, its highest level since early 2014. April gold futures last traded at $1,340.40 an ounce, relatively flat on the day.
The U.S. central bank continues to look past weak inflation, which remains below its 2% target. The statement said that the committee will continue to monitor price pressures.
"Inflation on a 12-monthbasis is expected to move up this year and to stabilize around the Committee's 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughlybalanced, but the Committee is monitoring inflation developments closely," the statement said.
Avery Shenfeld, senior economist at CIBC World Markets, saidthat he is not expecting to see much market reaction to the latest Fed decision.
“The decision to stand pat but signalfurther hikes ahead was unanimous. There's nothing in here thatshould change expectations, which have now settled in around our forecast forthree hikes in total in 2018,” he said.
By Neils ChristensenFor Kitco News
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