Gold firms after Fed holds off on rates
Uncertainty over the path of interest rates has held yellow metal in check
Gold rose yesterday after the Federal Reserve stopped short at this week’s policy meeting of indicating that a further increase in US interest rates is on the cards for later this year.
Uncertainty over the path of interest rates has held gold in check since it rallied to more than two-year highs in the wake of Britain’s shock vote last month to leave the European Union.
Relief that the Fed was not more explicit about rates pulled it back to a two-week high yesterday. Spot gold was 0.1 per cent higher at $1,341.40 an ounce at 0930 GMT, having ended Wednesday up 1.5 per cent in the wake of the Fed statement. US gold futures for August delivery were up 1.1 per cent at $1,340.70.
“The gold price reacted quite positively to the news that there was no rate hike, and that a September rate hike is not certain,” Capital Economics analyst Simona Gambarini
The dollar plunged against the yen after the Federal Reserve reiterated a gradual approach to tightening and traders awaited today’s Bank of Japan monetary policy decision.
A gauge of the greenback fell for a third day as traders saw only a 26 per cent chance of a US interest rate increase in September. Japan’s currency resumed gains after dropping on Wednesday when Prime Minister Shinzo Abe announced a 28 trillion yen (Dh980.52 billion, $267 billion) fiscal-stimulus package.
“We’re seeing broad dollar weakness,” said Yuji Kameoka, chief foreign-exchange strategist at Daiwa Securities Co. in Tokyo. said. “But this is probably short-term volatility.”
“We are quite hawkish on the Fed policy for this year and next,” she said. “The Fed is running out of excuses to not hike rates.” The Federal Reserve did say near-term risks to the US economic outlook had diminished, potentially leading to a resumption of monetary policy tightening this year. However, it gave no indication whether it would raise rates at its next meeting in September.
Gold is sensitive to rising US rates, which would lift the opportunity cost of holding nonyielding bullion, while boosting the dollar, in which it is priced.