Gold up after Fed minutes suggest little change in US rate outlook
NEW YORK/LONDON — Gold prices rose on Wednesday as the dollar slipped and minutes of the Federal Reserve’s last policy meeting suggested the US central bank was cautious about raising interest rates.
The metal is highly sensitive to higher rates, which increase the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced.
Spot gold traded at $1,256.02 an ounce by 2:50 p.m. EDT (1850 GMT), up 0.42% from Tuesday, when it slipped 0.70% after two days of gains.
Minutes of the Federal Open Market Committee’s early May meeting showed policy makers agreed to not tighten credit until they saw evidence that a recent economic slowdown was transitory.
Federal Funds Futures imply traders see an 83% chance of a US rate hike in June, and a 46% chance of two more hikes by the year-end.
“Gold is largely unchanged after an initial burst higher failed as May’s Fed minutes offered little to suggest that the Committee was seriously reconsidering a widely anticipated June rate hike,” said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York.
“Yields are lower though, as there was no indication that a balance sheet reduction was imminent which may support gold around today’s lows.”
Expectations for higher US interest rates next month and possibly later in 2017 have been a major factor in keeping gold prices pinned below chart resistance at $1,300 an ounce this year.
Gold has risen about 3% since hitting a near- two month low of $1,213.81 on May 9. The gain was driven chiefly by US political turmoil after President Donald J. Trump fired Federal Bureau of Investigation Director James Comey, triggering a stock sell-off and pressuring the dollar. “We think that gold is slowly regaining interest, but hesitation lingers in terms of putting on more meaningful strategic positions for now,” UBS Strategist Joni Teves said in a note.
“Market participants are looking for more significant catalysts in order to strengthen their conviction and many still struggle to jump into gold in an environment where the Fed is hiking rates.”
US stocks were volatile but still slightly higher on Wednesday. World stock markets eased earlier on Wednesday after China’s sovereign credit rating was downgraded. The dollar was down 0.20% against a currency basket.
US gold futures for June delivery settled 0.20% lower at $1,253.10 an ounce.
Among other precious metals, silver was up 0.80% at $17.16 an ounce, platinum was 0.80% higher at $947.30 an ounce, while palladium was down 1.04% at $762.50 an ounce.