Gold climbs nearly 1% after Fed, BoJ stand pat

london — Gold rose one per cent on Thursday to its highest in a week as the Bank of Japan held policy steady, boosting the yen versus the dollar, and after the Federal Reserve signalled that it was in no rush to tighten monetary policy.

The Fed left interest rates unchanged after its latest meeting on Wednesday and, while keeping the door open to a hike in June, showed little sign it was in a hurry to tighten policy amid an apparent slowdown in the US economy.

Spot gold was up 0.9 per cent at $1,257.06 an ounce at 0933 GMT, off an earlier one-week high of $1,258.70, while US gold futures for June delivery were up $8.90 an ounce at $1,259.53.

German bond yields fell as relief spread across markets that the Fed had not strongly signalled that it would raise interest rates in June, while the dollar slid 0.7 per cent against a basket of currencies.

“The FOMC maintained rates as they currently are, possibly pushing out rate expectations still further into the year ahead, and we caught a bid on the back of that,” Mitsubishi analyst Jonathan Butler said. “The dollar’s still subdued, and falling US Treasury yields similarly are giving some upside to gold.”

The US currency came under further pressure after the Bank of Japan defied market expectations for more monetary stimulus, boosting the yen. The subsequent near three per cent fall in dollar/ yen was its biggest daily drop since August 2015.

US short-term interest rate futures reflect the expectation the Fed will wait until September before raising rates. Gold is highly sensitive to rising interest rates, which lift the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced.

“The longer the Fed holds off on raising rates, the better for gold,” HSBC said in a note. “The bullion market will now focus on the prospects of a Fed hike at the next meeting in June, and the possibility that the Fed will tighten later this year may help cap bullion prices.”