Gold jumps to six-week peak after Fed statement, US dollar weakens

Gold jumped 1% to a six-week high on Wednesday, after the US Federal Reserve said it would start to wind down its massive holdings of bonds “relatively soon,” pushing the dollar lower.

The US central bank kept interest rates unchanged as expected and said it was continuing the slow path of monetary tightening that has lifted rates by a percentage point since 2015, the Fed said in a statement following a two-day meeting.

Spot gold rallied 1.10% to $ 1,262.11 an ounce by 3: 11 p. m. EDT (1911 GMT). Its session high of $1,263.42 was the highest since June 15.

Before the Fed statement, US gold futures for August delivery settled down 0.20% at $1,249.40.

“Gold clawed back recent losses and surged to fresh highs of the rally as the Fed confirmed it was on a summer sabbatical with a safe statement that nodded to lower inflation but was offset by a confirmation that balance sheet tapering would occur ‘relatively soon,’” said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York.

The dollar weakened to a 13-month low against a basket of major currencies after the Fed statement. US 10-year Treasury yields also fell, providing support to bullion.

Lower yields decrease the opportunity cost of holding nonyielding gold, while a weaker greenback makes dollar- priced bullion less expensive for holders of other currencies.

“They weren’t quite ready to start the clock on letting bonds roll off their balance sheet, but saying it’s coming ‘relative soon’ is in line with our view that it’s on tap for the September decision,” said Avery Shenfeld, chief economist for CIBC Capital Markets.

Prior to the statement, expectations of another rate hike before the end of the year were less than 50%.

“We expect the Fed to delay its next rate hike until December this year, with risks skewed toward a longer pause given the possibility that core inflation takes longer to recover. We expect two rate hikes next year,” ABN Amro economist Nick Kounis said in a note.

Holdings at the SPDR Gold Trust, the world’s largest goldbacked exchange-traded fund, fell 1.13% to 800.45 tons on Tuesday from 809.62 tons on Monday.

In other precious metals, silver turned higher and was up 0.80% at $16.59 per ounce. Platinum edged up 0.03% to $923.75, while palladium rose 1.10% to $866.40 per ounce.